A recent judgment has confirmed that where there are rival interpretations of a company’s articles of association, weight will be given to the construction that is more consistent with commercial common sense. This sounds a reasonable view, but that interpretation may not always be what a particular shareholder or director had perhaps intended. This case should be of interest to businesses of all sizes. It demonstrates the importance of reviewing your articles of associations and any shareholders’ agreement to ensure that these do what you want them to do, especially at critical moments such as death, resignation, or dismissal.
Background to the case[1]
Syspal Capital Limited (SCL), controlled by Mr A Roberjot, owned 76% of the shares in Syspal Holdings Limited (SHL). The remaining 24% was owned by Mr Truman, who also served as a director of SHL. SHL is the holding company of a group of manufacturing and engineering businesses, including Syspal Limited. Mr Truman was also an employee and director of Syspal Limited.
Mr Truman was dismissed from his position as an employee of Syspal Limited in October 2022 and subsequently removed as its director in November 2022. However, he retained his position as director of SHL until he retired on his 65th birthday in May 2023. As with many companies, the articles of association of SHL contained a provision requiring an individual leaving the group to surrender their shares and contained a mechanism for the share transfer and, crucially, the valuation of the same (sometimes called a ’pre-emption right’ or ’leaver provision’).
The issue in dispute
The case centred on rival interpretations of a provision in the articles of association that triggered the share transfer mechanism. If Mr Truman’s dismissal as an employee of Syspal Limited in October 2022 triggered the mechanism, then the sale price for his shares would be at "Market Value". But, if Mr Truman’s retirement as a director of SHL in May 2023 triggered the mechanism, then the sale price for his shares would be at "Fair Value". It was agreed that “Fair Value” was likely to be substantially greater than “Market Value”.
SHL argued for a narrower interpretation of the provision, so that Mr Truman’s dismissal as an employee triggered the transfer mechanism resulting in a lower share value. By contrast, Mr Truman argued for a wider, less-restrictive interpretation so that the mechanism was only triggered when he retired and thus ceased contributing to the business group in any capacity.
What the courts decided
The Court agreed with Mr Truman’s interpretation that the share transfer mechanism was not triggered until his retirement, and therefore that he was entitled to Fair Value for his shares.
Why did the courts decide this?
The courts reaffirmed and applied the general principles of contractual interpretation: if the natural meaning of the language is clear, then that will be the interpretation given by a court. But if there are rival interpretations – as in this case – a court will take a ‘whole contract’ approach and may give weight to a construction that is more consistent with business or commercial common sense.
In this case, the purpose of the share transfer mechanism was to give other shareholders an opportunity of buying the shares of a shareholder who stopped contributing on a day-to-day basis. The articles envisaged that Mr Truman could be “employed” not only as an employee in the usual sense, but also as a director or consultant. As Mr Truman remained a director until retirement, he therefore continued to contribute. This interpretation accorded with commercial common sense of what the article in question intended to achieve and avoided potential manipulation by the majority shareholder to force a sale at a lower price.
What does this mean for your business?
- This case highlights the importance of precise language in company articles and shareholder agreements in general, and particularly in relation to pre-emptive rights and leaver provisions. These should be scrutinised to ensure that they do as you intend them to do. A court will first give a natural meaning to the words of the contract and will not seek to correct a bad commercial bargain. But if the interpretation is unclear, it will give weight to the construction that is more consistent with commercial common sense.
- Unforeseen situations may arise years after shareholders start out in business. In this case, a breakdown in trust arose because of a falling out between Mr Truman and one of Mr Roberjot’s sons, who had become involved in the running of the business. It is unlikely when they started out many years earlier that Mr Truman and Mr Roberjot envisaged a dispute would arise involving one of their children. Consider whether your articles of association still suit the reality of your business today.
- Check whether the articles of association and any shareholders’ agreement appropriately protect you (and your family in case of your death or incapacity) as intended, particularly where a party is leaving or removed from the business, and the circumstances around their departure.
- Consider agreeing a clear share valuation mechanism today before a dispute arises. Whilst the court’s decision allowed Mr Truman to obtain “Fair Value” for his shares, the auditors of SHL were unable to ascertain this amount, so the parties had to agree that the court should direct an inquiry into the valuation of the shares based on its judgment. This inevitably incurred more costs and time.
If you have any concerns about whether your articles of association or shareholders’ agreement do what you want them to do, or if you and your fellow directors or shareholders have a different view of the meaning of certain provisions, please contact us. Our experienced corporate disputes solicitors will help you to find the best commercial solutions to your business disputes.
[1] Syspal Capital Limited v Mr Christopher John Truman, Syspal Holdings Limited [2025] EWCA Civ 469
The information provided in this article is provided for general information purposes only, and does not provide definitive advice. It does not amount to legal or other professional advice and so you should not rely on any information contained here as if it were such advice.
Wright Hassall does not accept any responsibility for any loss which may arise from reliance on any information published here. Definitive advice can only be given with full knowledge of all relevant facts. If you need such advice please contact a member of our professional staff.
The information published across our Knowledge Base is correct at the time of going to press.
