Supreme Court dismisses appeal against compulsory acquisition offer under Companies Act 1963 s.204(1).

THE SUPREME COURT

Record No. 079/05

Fennelly J.

Kearns J.

Finnegan J.

IN THE MATTER OF WALLS PROPERTIES LIMITED AND

IN THE MATTER OF THORNHILL PROPERTIES LIMITED

AND IN THE MATTER OF THE COMPANIES ACTS 1963-1983

BETWEEN

PATRICK JOSEPH WALLS

APPLICANT/APPELLANT

AND

P.J. WALLS HOLDINGS LIMITED

RESPONDENT/RESPONDENT

JUDGMENT of Mr Justice Finnegan delivered on the 31st day of July 2007

This is an appeal against the order of Smyth J. refusing the appellant the relief which he sought pursuant to the Companies Act 1963

section 204(1) thereof. Section 204(1) provides as follows -

“204(1) Subject to subsection (2), where a scheme, contract or offer involving the acquisition by one company, whether

a company within the meaning of this Act or not (in this section referred to as “the transferee company”) of the beneficial

ownership of all the shares (other than shares already in the beneficial ownership of the transferee company) in the

capital of another company, being a company within the meaning of this Act (in this section referred to as “the transferor

company”) has become binding or been approved or accepted in respect of not less than four-fifths in value of the shares

affected not later than the date 4 months after publication generally to the holders of the shares affected of the terms of

such scheme, contract or offer, the transferee company may at any time before the expiration of the period of 6 months

next following such publication give notice in the prescribed manner to any dissenting shareholder that it desires to

acquire the beneficial ownership of his shares, and when such notice is given the transferee company shall, unless on an

application made by the dissenting shareholder within one month from the date on which the notice was given, the court

thinks fit to order otherwise, be entitled and bound to acquire the beneficial ownership of those shares on the terms on

which under the scheme, contract or offer, the beneficial ownership of the shares in respect of which the scheme,

contract or offer has become binding or been approved or accepted is to be acquired by the transferee company.”

On the application the appellant sought the following reliefs –

“1. A declaration pursuant to section 204 of the Companies Act 1963 that the respondent is neither entitled nor bound to

acquire the shares (or any of them) of the applicant in Walls Properties Limited.

2. An order that the notice (pursuant to section 204(1) of the Companies Act 1963) dated 19th November 2003 served on

the applicant in respect of the applicant’s shareholding in Walls Properties Limited by the respondent be set aside.

3. A declaration pursuant to section 204 of the Companies Act 1963 that the respondent is neither entitled nor bound to

acquire the shares (or any of them) of the applicant in Thornhill Properties Limited.

4. An order that the notice (pursuant to section 204(1) of the Companies Act 1963) dated 19th November 2003 in

respect of the applicant’s shareholding in Thornhill Properties Limited served on the applicant by the respondent be set

aside.”

Walls Properties Limited (“Properties”), Thornhill Properties Limited (“Thornhill”) and P.J. Walls Holdings Limited (“Holdings”) are private

companies in which the shareholders are members of the Walls family. The appellant holds ten ordinary shares in Properties amounting

to 10% of the issued share capital and ten ordinary shares in Thornhill amounting to just under 10% of the issued share capital. The

shareholding position in Holdings is somewhat more complex. The Memorandum of Association provides that the share capital of the

company is €1,375,250 divided into 1,100,000 ordinary shares and 200 12% non-cumulative preference shares of €1.25 each. The

Articles of Association provide that the preference shares shall be preferential as to dividend and on winding-up as to repayment of

capital but shall not confer on the holders any right to share in the property or assets of the company. The holders are entitled to

receive notice of and to attend and vote at any general meeting of the company. Ordinary shares do not confer on the holders the

right to receive notice of or to attend or vote at any general meetings. This share structure is reflected in the annual accounts for

the year ended 31st December 2002 exhibited by the appellant. The appellant holds 20 of the 12% cumulative preference (voting)

shares in Holdings amounting to 10% of those shares issued and 222,059 ordinary shares amounting to 22.2% of those shares issued.

All three companies form part of a group the core business of which is construction. The core business is carried on through a number

of subsidiaries of Holdings. Properties holds development and investment property. One such property relevant to this application is an

office building and land at Northern Cross, Malahide Road, Dublin. Adjoining the office building and land is a site of 1.17 acres which is

owned by Thornhill.

On the 7th October 2003 Holdings made offers to purchase the entire issued share capital in Properties and in Thornhill, the former

being valued at €20,555,000 and the latter at €100. The offer required the immediate transfer of the shares but in the case of

Holdings payment of the consideration was deferred being payable by six instalments, the first to be paid on the 24th December 2003

and the last on the 30th November 2009. The offers were open for acceptance until the 17th October 2003 but this was

subsequently extended to the 10th November 2003. The offers were not accepted by the appellant but were accepted by the other

shareholders in Properties and Thornhill.

The originating notice of motion sets out the grounds upon which the appellant sought relief pursuant to section 204(1) as follows –

(a) Properties

(i) The offer price was substantially below the true value of the shares.

(ii) The purchase consideration for the shares was to be paid in instalments over a period of six years from the

proposed date of completion during which time the shareholders would be unsecured creditors of Holdings.

(iii) The time given for acceptance of the offer was of too short a duration to enable the shareholders to make an

informed decision as to the offer.

(iv) The shareholders were not given a valuation of the company’s worth nor any information which would enable

them to reach a conclusion as to the company’s worth.

(v) The shareholders were not given properly independent advice as to the offer and in particular were not advised

to seek a valuation of the company’s worth.

(vi) The shareholders were not informed as to the purpose of the scheme of which the offer formed a part or given

proper particulars of the scheme generally.

(vii) The scheme of which the offer formed part was carried into effect in contravention and disregard of the

contract of pre-emption contained in the Articles of Association and the rights of the appellant thereunder.

(b) Thornhill

(i) The offer price was substantially below the true value of the shares.

(ii) The time given for acceptance of the offer was of too short a duration to enable the shareholders to make an

informed decision as to the offer.

(iii) The shareholders were not given a valuation of the company’s worth nor any information which would enable

them to reach a conclusion as to the company’s worth.

(iv) The shareholders were not given properly independent advice as to the offer and in particular were not advised

to seek a valuation of the company’s worth.

(v) The shareholders were not informed as to the purpose of the scheme of which the offer formed a part or given

proper particulars of the scheme generally.

The onus on the application

Except in relation to the proportion of acceptances required for the operation of the section being nine tenths in value, the

Companies Act 1948, section 209(1) in the United Kingdom is identical to the Companies Act 1963, section 204(1). Decisions on

section 209(1) of the Companies Act 1948 are of considerable assistance. In Re Bugle Press Limited [1961] Ch. D. 270 Buckley J.

cited with approval the following passage of the judgment of Vaisey J. in In Re Sussex Brick Company Limited (a note of which

judgment is appended to the report of In Re Bugle Press Limited -

“I think that the applicant (the dissentient shareholder) is faced with the very difficult task of discharging an onus which

is undoubtedly the heavy one of showing that he, being the only man in the regiment out of step, is the only man whose

views ought to prevail.”

The rationale for this is given by Buckley J. at p.276 as follows –

“In the ordinary case of an offer under this section, where the 90% majority who accept the offer are unconnected with

the persons who are concerned with making the offer, the court pays the greatest attention to the views of that

majority. In all commercial matters, where commercial people are much better able to judge of their own affairs than the

court is able to do, the court is accustomed to pay the greatest attention to what commercial people who are concerned

with the transaction in fact decide.”

The reference to “the 90% majority who accept the offer are unconnected with the persons who are concerned with making the

offer” relates to the specific facts of the case. There, there were three shareholders, two of whom wished to acquire the appellant’s

shares and had made offers for the same. The section requires that the transaction be one between companies, the transferor

company and the transferee company, and does not entitle an individual or individuals to acquire compulsorily the shares of a

dissentient minority. In that case, their offers having been rejected, the two shareholders wishing to acquire the appellant’s shares

formed a company by which an offer was made so that the transferee company and the 90% of the transferor company’s

shareholders were in effect one and the same and the section was not being used for the purpose of any scheme, contract or offer

contemplated by the section but rather to enable the majority shareholders to expropriate the shares of, and evict, the minority

shareholder. The transferee company was a mere screen for the majority shareholders and there was no independent majority

exercising any sort of disinterested choice as to whether or not the offer should be accepted. That is not the position in the present

case and accordingly the fact that the offer in issue here has been accepted by 90% of the shareholders in Properties and 90.91% of

the shareholders in Thornhill is highly relevant. See also In re Hoare and Company 150 L.T. 374 on the broadly similar provisions of the

Companies Act 1929 section 155(1) and In Re Press Caps Limited [1949] Ch.D. 434.

In In the matter of Fitzwilton Plc 2000 (2 I.L.R.M. 263) the Supreme Court held that the onus on an application under section 204(1)

in general fell on a dissenting shareholder to satisfy the court that it was an appropriate case in which to make an order and that it

was reasonable as a matter of fact and established as a matter of law that the court should pay great attention to the views of the

majority who had accepted the offer: see also McCormick v Cameo Investments Limited [1978] I.L.R.M. 191. However acceptance of

an offer by shareholders in the transferor company who are also associated directly or indirectly with the transferee company would

not carry the same weight or influence as acceptance by shareholders wholly independent of the transferee company.

In the present case the shareholdings in each of the companies was as follows -

Walls Properties Limited

Michael Paul Walls 20 ordinary shares

Susan Walls 2 ordinary shares

Brendan Walls 4 ordinary shares

Lynda Walls 2 ordinary shares

Michelle Walls 2 ordinary shares

Liam Vincent Walls 16 ordinary shares

Stephen Walls 2 ordinary shares

Robert Walls 2 ordinary shares

Kate Walls 2 ordinary shares

Aidan Walls 18 ordinary shares

Ethna Elicia Walls 10 ordinary shares

Dr. Patrick J. Walls 10 ordinary shares

Ann Sherratt 10 ordinary shares

Edward J. Walls 10 ordinary shares

Total number of shares issued 110.

Thornhill Properties Limited

Michael Paul Walls 20 ordinary shares

Susan Walls 2 ordinary shares

Brendan Walls 4 ordinary shares

Linda Walls 2 ordinary shares

Michelle Walls 2 ordinary shares

Liam Vincent Walls 16 ordinary shares

Stephen Walls 2 ordinary shares

Robert Walls 2 ordinary shares

Kate Walls 2 ordinary shares

Aidan Walls 18 ordinary shares

Ethna Elicia Walls 10 ordinary shares

Dr. Patrick J. Walls 10 ordinary shares

Anne Sherratt 10 ordinary shares

Total number of shares issued 100.

P.J. Walls Holdings Limited

Ordinary Shares 12% Cumulative Preference (Voting) Ordinary Shares

Shares

Aidan Walls 21 (10.5%) 131,319 (13.1%)

Anne Sherratt 2 (1%) 86,486 (8.6%)

Crystal Sherratt -- 10,240 (1%)

Dr. Patrick Joseph 20 (10%) 110,965 (11%)

Walls

Edward Joseph Walls 20 (10%) 86,965 (8.6%)

Ethna Begley 2 (1%) 94,725 (9.4 %)

Joan Walls -- 4,000 (0.3%)

Kate Walls -- 8,160 (0.8%)

Liam Vincent Walls 106 (53%) 222,059 (22.2%)

Matthew Sherratt -- 10,240 (1%)

Michael Begley -- 16,240 (1.6%)

Michael Paul Walls 29 (14.5%) 169,491 (16.9%)

Michael Paul Walls & -- 24,480 (2.4%)

Joan Walls

Noelle Walls -- 4,000 (0.3%)

Patrick Gerard Culhane -- 312 (0.03%)

Robert Walls -- 8,160 (0.8%)

Stephen Walls -- 8,160 (0.8%)

Winstan Sherratt -- 4,000 (0.3%)

Total number of 12% cumulative preference (voting) shares issued 1,000,002.

Total number of ordinary shares issued 200.

The appellant in his grounding affidavit deposes that the prime architects of the offers are Liam Vincent Walls and Michael Paul Walls

and that the majority of those who have accepted the offer are very closely linked to the prime architects. Susan, Brendan, Lynda

and Michelle Walls are the adult children of Michael Paul Walls. Stephen Walls, Robert Walls and Kate Walls are the adult children of

Liam Vincent Walls. Ethna Walls is a sister to the appellant and to Liam Vincent Walls and Michael Paul Walls and carries out a

considerable amount of consultancy work for Holdings and its subsidiaries. The total number of shares issued in Properties is 110 of

which Michael Paul Walls holds 20, Liam Vincent Walls 16, their children 16 and Ethna Elicia Walls 10 in total 62 shares. In Thornhill

there are 100 shares issued of which Michael Paul Walls holds 20, Liam Vincent Walls 16, their children 16 and Ethna Elicia Walls 10 in

total 62 shares. The appellant contends that the acceptance of the offers by the other shareholders by reason of these

shareholdings is a sham and that there was no independent majority exercising any sort of disinterested choice.

In the present case the learned High Court judge held that it is clearly distinguishable from In Re Bugle Press Limited in that there is

no element of sham nor was the outcome of the offer a foregone conclusion and that accordingly the onus of proof remained on the

appellant. This finding is supported by the affidavit evidence. In his affidavit sworn on the 22nd February 2004 Michael Paul Walls

deposes that Aidan Walls is an independently wealthy qualified quantity surveyor project manager and property developer, Ethna

Walls is a college lecturer and independent architect and Ann Sherratt an astute commercial minded person. Between them, they hold

38 of the 110 shares issued in Properties and 38 of the 100 shares issued in Thornhill. I am satisfied that the conclusion of the learned

trial judge that the onus in this case rests on the appellant to show that the transaction is unfair is correct.

I propose dealing with each of the grounds relied upon by the appellant in turn

(i) The offered price was substantially below the true value of the shares

(a) Properties -

The company’s assets consist of freehold land. Its income consists of rents and other investment income. The appellant

contends that its true value depends on the net value of the land which it holds. The principal asset is an office building

and land at Northern Cross, Malahide, Dublin. The property has the benefit of planning permission for a 165 bedroom hotel

and outline planning permission for 225 apartments. On behalf of the appellant Séan O’Neill valued the lands at

€33,000,000. The offer values Properties at €20,550,000. Further the purchase price for the entire issued share capital is

payable by six instalments, the first instalment to be paid on the 21st December 2003 and the last instalment on the 30th

November 2009. Notwithstanding this the shares in Properties are to be transferred leaving the transferors as unsecured

creditors of Holdings.

(b) Thornhill -

Thornhill is the owner of a 1.17 acre site adjoining the lands of Properties. The offer is €1 per share for the entire issued

share capital of €100. Mr O’Neill for the appellant values the lands at €877,500. However outstanding bank loans charged

against the lands at September 2003 amounted to €920,560 and on this basis the respondent contends that Thornhill has

in fact a negative valuation.

From the foregoing it is clear that the appellant’s concern centres on the true value of Properties lands and the difference between

the valuations of the lands and of the shares obtained by him and the offer price.

In his affidavit sworn on the 22nd January 2004 Michael Paul Walls on behalf of the respondent explains the background and rationale

behind the offers. The objective of Properties was to obtain planning permission for residential development of approximately 12.7

acres of the lands and immediately thereafter dispose of the same. An application for planning permission was made for the

construction of a hotel on part of the lands and this had certain tax advantages. The sale of the site with the benefit of hotel and

residential planning would most likely result in the hotel not proceeding and this would impact on further applications for residential

development on the lands. Given time constraints it would have been virtually impossible for any party other than Holdings to carry

out the hotel project within the apprehended time frame left for tax allowances. The offer gave effect to what could be described as

corporate restructuring rather than a takeover or expropriation. In addition to the valuation to which I have referred there is a

valuation carried out by Hamilton Osborne King for Bank of Ireland which values the lands at €26.4 million.

There are advantages to a sale of the shares in Properties rather than a sale of the lands. On a sale of the lands capital gains tax

would be payable and a distribution of the surplus to shareholders would be subject to income tax in the hands of the recipient. On a

sale of the shares capital gains tax at the rate of 20% only is payable. A sale of shares results in a 20.7% higher return to individual

shareholders than could be achieved on a sale of the lands at €32.12 million (the market value of the lands of Properties less the

Thornhill land valuation). In order for shareholders to achieve the same return on a sale of the land as on a sale of shares a minimum

price of €38.8 million would have to be obtained. Michael Paul Walls disputes the valuation of Séan O’Neill on the basis that Mr O’Neill

was unaware of wayleaves affecting the lands and a failure to allow for a major surface water sewer crossing the same and for an

underground car parking element. The offer actually made was on the basis of a net asset value for Properties of €20.55 million.

Should the value of the land increase, any such lift in value terms would flow in any event to the shareholders in Properties in their

capacity as shareholders in Holdings. The offer accordingly makes sound commercial sense and the other shareholders in Properties

have seen fit to accept it on that basis.

The appellant relies upon the valuation of the shares in Properties by James V. Carr who puts a combined net worth on both

companies of €35,568,425. This valuation however does not take account of the tax advantages to the individual shareholders or of

the fact that any uplift in the value of the lands will be reflected in the value of the shareholders shares in Holdings. Mr Carr’s

valuation of the shares is based on the valuation of the assets of the companies of Mr O’Neill.

A further complaint of the appellant is that the offer price is devalued because the same will be repaid in instalments as follows:-

€10,000,000 24th December 2003

€ 2,000,000 30th November 2005

€ 2,000,000 30th November 2006

€ 2,000,000 30th November 2007

€ 2,000,000 30th November 2008

€ 2,550,000 30th November 2009

From Mr Carr’s affidavit it appears that if the consideration payable to the appellant were to be grossed up to take account of this it

would require an additional payment of €191,818.18 at the date of payment of the first instalment. Further, capital gains tax is

payable on the full amount of the consideration in the first year and will amount in the appellant’s case to €373,636.36. However

almost 50% of the purchase money will be paid in the first year and this will leave the appellant with €535,454.55 out of this

instalment after payment of capital gains tax of €373,636.36.

The foregoing being the evidence the learned trial judge noted as important the following –

1. What is involved is a transfer of shares not a transfer of land.

2. Prior to completion or acceptance of the offer the appellant had a 9.09% shareholding in Properties and a 10%

shareholding (and also 11% of the issued ordinary shares) in Holdings.

3. If the scheme is completed the appellant will cease to hold any shares in Properties but his shareholding in percentage

terms in Holdings will be greater. Not only does the appellant receive his appropriate percentage benefit in cash, as do the

other shareholders but his beneficial interest in the assets of Properties will increase because of his higher percentage

shareholding in Holdings. The offer is distinguishable from an outright acquisition of shares for cash only.

In relation to the valuation evidence the learned trial judge said –

“While understanding the argument based on valuations, it seems to me improbable that the majority of the shareholders

accepted the combined worth of Properties and Thornhill at €20,550,100 if their combined net worth was in fact

€35,568,425…I am unable to accept the valuation figures as so definitive as not to leave great scope for differences and

while mindful that the only valuation of shares exhibited is that produced by the applicant long after these proceedings

issued, I cannot conclude, as invited by Mr Cush to do, that the offer is at a gross undervalue. An ex post facto valuation

of shares, if it had been sought and obtained to justify the terms of the offer, could not displace the respect (not

uncritical acceptance) for the views taken by the majority of the offer “package” as a whole. The fact that the majority

may have relied on the views expressed by Paul and/or Liam, to whom they were related, and who were not financial

analysts, does not detract from the reasonable probability that they might have considered Paul and Liam to have

detailed intimate knowledge of the business and what its assets and shares were worth. While the record of Deloitte &

Touche dated 25th May 2004 of the stated valuation approach adopted by Holdings in valuing the ordinary shares and

properties as of September 2003 smacks of ex post facto reasoning, I cannot ignore such evidence. In the context of

such evidence I do not accept that the applicant has shown that the offer is obviously and convincingly unfair.”

The conclusion of the trial judge is supported by the affidavit evidence and while, the trial having been on affidavit, it is open to this

court to disagree with the trial judge’s conclusions on the evidence it should be slow to do so. I am satisfied that the manner in which

the offer was structured was advantageous to the shareholders in Properties and Thornhill. The offer was accepted not just by those

shareholders who, on the basis of their relationship to Liam Vincent Walls and Michael Paul Walls, the appellant contends were not

acting independently (but without adducing any evidence other than that contention) but by all other shareholders other than the

appellant to accede to the application on this basis would be, I am satisfied, to work an unfairness to the shareholders other than the

appellant.

As to the onus on an appellant in In Re Sussex Brick Company Limited Vaisey J. said –

“I agree that certain criticisms set out in the applicant’s affidavit show that a good case could be made out for the

formulation of a better scheme, of a fairer scheme, of one which would have been more attractive to the shareholders if

they could have understood the implications of the criticisms. I have no doubt at all that a better scheme might have

been involved, but is that enough? Is it necessary to establish the validity of such an offer as put forward in the present

case? Is there any point in the scheme on which a better view might have prevailed, and rather more generous treatment

might have been offered to persons whose shares are sought to be expropriated? A better and fairer offer might have

been made, possibly, but I do not think that because the scheme is not 100% fair or right there is the kind of unfairness

with which Maughan J. was dealing in the case to which I have referred (In Re Hoare and Co.). The mere finding of items,

or details, in the scheme which are open to valid criticism, is not unfairness consistent with the spirit of that judgment.

A scheme must be obviously unfair, patently unfair, unfair to the meanest intelligence. It cannot be said that no scheme can be

effective to bind a dissenting shareholder unless it complies to the extent of 100% with the highest possible standards of fairness,

equity and reason. After all, a man may have an offer made to him and, although he would prefer something better, would be quite

prepared to accept it because it was good enough in all the circumstances.”

I agree with the finding of the learned trial judge that the appellant has failed to show that by reason of the price offered and the

manner of payment the offer was unfair.

The appellant accordingly fails on this ground.

(ii) The purchase consideration for the shares was to be paid in instalments over a period of six years from the proposed

date of completion during which time the shareholders would be unsecured creditors of Holdings.

It is true that there is a cost to shareholders in having to await payment of the consideration over a prolonged period. The cost to

the appellant, calculated by Mr Carr on his behalf, is €191,818.18. It is a considerable sum taken in isolation but in the context of the

transaction overall it has to my mind minimal impact particularly when regard is had to the benefit to shareholders in Properties of

proceeding by way of a sale of shares rather than a sale of lands. There is, however, the additional element that pending the final

payment an accepting shareholder will be an unsecured creditor of Holdings for the amount outstanding of the consideration.

However, accepting the status as unsecured creditor, there is nothing to suggest that Holdings will be unable to meet its obligations.

In his affidavit sworn on the 22nd January 2004 on behalf of the respondent Michael Paul Walls deposes as follows –

“The grounds and rationale behind the deferred payment structure (included nothing payable in 2004) were discussed

(and specifically explained by me to Joe (the appellant)) in the initial meeting prior to the offers being made. I also

discussed the proposed payment structure at the EGM. The primary reason for the staggered payment structure was to

strengthen the overall prospects for the development project. There is a strong asset base in Holdings to support the

acquisition price and residual consideration. In contrast to Properties, Holdings has a strong sustainable cash flow from its

trading activities to meet the deferred payments, even envisaging a scenario where the development potential of the

lands is not fully realised. In this regard the initial payment of €9.1 million to the accepting shareholders was made out of

Holdings own cash resources without resorting to bank loans. As a shareholder in Holdings, Joe is and has at all times

been well aware of Holdings strong financial footing and its ability to meet the offered payments.”

On the basis of the affidavits filed in the matter I am satisfied that any risk to accepting shareholders is minimal. The deferred

payments are advantageous to Holdings and its proposals for the lands of Properties and Thornhill and so beneficial to the appellant in

his capacity as a shareholder in Holdings. To my mind the attitude of the other shareholders who have accepted the offer would in

any event very largely determine this issue: their acceptance signifies that they saw the advantages to be gained by them as

outweighing the risk identified by the appellant.

The appellant has not discharged the onus which he carries in relation to this ground.

(iii) The time given for acceptance of the offer was of too short a duration to enable the shareholders to make an informed

decision as to the offer.

The offer was contained in a letter dated 7th October 2003 which was received by the appellant on that date. The offer was open for

acceptance until 5 p.m. on the 17th October 2003. However the date was subsequently extended to the 10th November 2003. The

appellant complains that the time originally set was too short to enable a shareholder to make the necessary enquiries particularly

with regard to valuation. In Michael Paul Walls replying affidavit of 22nd January 2004 he deposes that the appellant was informed of

the proposed offer, the rationale for the same and the site valuations and the urgency which attended the offer in September 2003.

Following this the appellant wrote to some of the directors of Holdings and some of the shareholders of Properties on the 30th

September 2003. Following this there were a number of meetings between Michael Paul Walls and the appellants at which the offer

was discussed. At the extraordinary general meeting of Holdings on the 16th October 2003 at which all shareholders including the

appellant were present, Michael Paul Walls dealt in detail with the offer. There were a number of telephone conversations between

Michael Paul Walls and the appellant. On the 20th October 2003 the appellant had a meeting with Liam Wall, Pat Veale a director of

Holdings and Shaun Greene financial controller of Holdings in relation to the offer.

The learned trial judge was satisfied that the appellant was not going to accept the offer regardless of time and his solicitor wrote to

this effect on the 5th October 2003, but that in any event five weeks to consider the offer was, he held, adequate. There was

urgency in proceeding with the offer in that delay would have affected other shareholders who had accepted the same in that there

was a concern that the budget due later in 2003 would alter the tax regime, advantage of which it was the intention that benefit

should be taken.

The appellant’s complaint in the High Court ignored the extension of the time for acceptance as did the ground of appeal before this

court. I am satisfied that it is appropriate to have regard to the extended period and not just the period of ten days originally allowed

for acceptance. It is not suggested that the extended period is inadequate. Accordingly in all the circumstances the learned trial

judge was correct in determining that the extended period was adequate. The appellant fails on this ground.

(iv) The shareholders were not given a valuation of the company’s worth or any information which would enable them to

reach a conclusion as to the company’s worth.

The appellant’s solicitors wrote to the respondent’s solicitors on the 15th October 2003 indicating that he would not be accepting the

offers. One of the stated grounds for not accepting was that the offers were significantly lower than the market value of the shares.

The appellant had decided not to accept the offer as he had formed a view as to the value of the shares and the inadequacy of the

offer. Indeed, he having retained a solicitor who advised him well within the period for acceptance, I am not satisfied that the

appellant suffered from a deficit of information. Further a solicitor retained by the Holdings to furnish advice on the offer to

shareholders in Properties and Thornhill wrote to shareholders in those companies on the 7th October 2003 in which he indicated that

if any shareholder did not wish to be advised by him they could obtain separate legal representation as indeed the appellant did. The

information available was sufficient for the other shareholders.

In these circumstances no question of unfairness, I am satisfied, arises on this ground.

(v) Shareholders were not given properly independent advice as to the offer and in particular were not advised to seek a

valuation of the company’s worth.

The letter of 7th October from the solicitors retained by Holdings, Beauchamps, to advise shareholders in Properties and Thornhill drew

attention to the possibility of obtaining legal advice: this advice would certainly have included examination of the transferor

companies’ worth. The appellant in fact obtained independent advice. By 15th October 2003 having consulted his solicitors the

appellant decided not to accept the offer. Independent advice by definition is a matter for the shareholders in the transferor

companies. They are, of course, entitled to information on the offer from the Board of the transferee company and depending on the

circumstances perhaps from the Board of the transferee company. In this case the appellant is a shareholder in both companies and

has an entitlement to reasonable information from both. However I am satisfied that the appellant had that information both in his

capacity as a shareholder in the transferor company and as a shareholder in the transferee company and that he was in a position to

reject the offer having obtained legal advice by the 15th October 2003. In his solicitor’s letter of that date lack of information was

not raised as an issue.

The appellant fails on this ground.

(vi) The scheme of which the offer forms part was carried into effect in contravention and disregard of the contract of pre-

emption contained in the articles of association and the rights of the appellant thereunder.

The Articles of Association of Properties deals with the transfer of shares in article 7. Article 7(a) provides as follows –

“7(a) A share may be transferred by a member or any person entitled to transfer to any member selected by the

transferor: but save as aforesaid, and save as provided by paragraphs (f), (h) or (k) hereof, no share shall be transferred

to a person who is not a member so long as any member or any person selected by the directors as one to whom it is

desirable in the interest of the company to admit to membership is willing to purchase the same at the fair value.”

Article 7(b) to (h) set out the procedures to be followed where a member proposes to transfer a share. Article 7(j) provides as

follows:-

“If any member at any time attempts to deal with or dispose of any shares in the company otherwise than in accordance

with the provisions of this article such member shall be deemed immediately prior to such attempt to have served the

company with a transfer notice in respect of all the shares registered in the name of such member and the provisions of

this article shall thereupon apply to such shares and such transfer notice shall be deemed to have been served on the

date on which the directors shall receive actual notice of such attempt.”

Thus upon an attempt to transfer any share in the company the procedures set out in Article 7(b) to (h) come into operation. The

appellant contends that as Holdings was not a member of Properties upon a shareholder accepting the offer the provisions of Article 7

were triggered and Properties ought thereupon to have acted in accordance with Article 7(j). It did not do so. Further to preserve his

right of pre-emption the appellant issued a plenary summons on the 17th November 2003. The consequence of this, it is argued, is

that Holdings in relation to shares transferred to it can take no greater interest than the transferors are entitled to pass and

accordingly holds those shares subject to the appellant’s right of pre-emption which entitles him to acquire not only a number of

those shares proportionate to his own shareholding but also the like proportion of those shares which have not been taken up by

other members. Further those members who have transferred their shares have thereby waived their right of pre-emption and the

effect of this is that Holdings could not obtain four fifths by value of the issued share capital as required by section 204 and would

not be in a position to issue a notice under section 204(1). In support of the argument reliance was placed on Lee & Company

(Dublin) Limited v Egan (Wholesale) Limited, the High Court (Kenny J. 27th April 1978).

In that case the Articles of Association of Egan (Wholesale) Limited contained broadly similar provisions conferring rights of pre-

emption. The second named defendant who owned 90% of the issued share capital in the company agreed the sale of the entire

issued share capital. There were three other shareholders. The second named defendant repudiated the agreement for sale and this

action for specific performance was taken. In short Kenny J. held that the plaintiff was entitled to specific performance of the

agreement insofar as it related to the second named defendant’s shares only but also to damages, or alternatively, not to proceed

with the purchase and seek damages only. In the course of his judgment, however, Kenny J. said that the obligation on the second

named defendant under the pre-emption provisions must be complied with.

The learned trial judge here had regard to the Companies Act 1963, section 25(1) which provides as follows:

“25(1) Subject to the provisions of this Act, the Memorandum and Articles shall, when registered, bind the company and

the members thereof to the same extent as if they respectively had been signed and sealed by each member, and

contained covenants by each member to observe all the provisions of the memorandum and of the articles.”

In the course of argument before this court there was extensive argument as to the proper construction of the provisions of Article 7.

However in my opinion it is unnecessary to consider those provisions in detail having regard to the clear statutory provision contained

in section 25(1) of the 1963 Act. In the event of any conflict between the provisions of the Companies Acts and a provision in the

Articles of Association the former will prevail. Section 204(1) of the Act of 1963 is triggered by a scheme, contract or offer involving

the acquisition “of the beneficial ownership of all the shares” of a transferee company. As is clear from Lee and Company (Dublin)

Limited v Egan Wholesale Limited a shareholder notwithstanding pre-emption provisions in the Articles of Association may enter into a

binding and enforceable contract for the sale of the shares notwithstanding non-compliance by him with pre-emption provisions

affecting the shares. Upon each shareholder accepting the offer of Holdings a binding agreement in respect of those shares came into

existence. The beneficial interest in those shares passed to Holdings upon a binding agreement coming into existence. Hawks v

McArthur [1951] 1 All E.R. 22, Re Hafner, Olhausen v Powderly [1943] I.R. 426 at 453 et seq. The provisions of the Articles of

Association, article 7 operate as between the shareholder and the company but also between the transferor and transferee of shares

to the extent that the pre-emption provisions prevent the legal estate in the shares passing: the beneficial ownership as between

transferor and transferee however passes. Once the statutory proportion of the issued share capital came into the beneficial

ownership of Holdings its entitlement to invoke section 204 arose. At this time the conflict between the pre-emption provisions and

the statutory entitlement of Holdings under section 204 came into conflict but having regard to the provisions of section 25(1) of the

Act of 1963 this conflict is resolved in favour of Holdings. It was so held by the learned trial judge and I am satisfied that he was

correct in so holding.

The appellant fails on this ground also.

4. The shareholders were not informed as to the purpose of the scheme of which the offer formed part or given proper

particulars of the scheme generally.

In dealing with the second complaint of the appellant I have quoted from the affidavit of Michael Paul Walls sworn on the 22nd

January 2004. The rationale of the deferred payment structure was discussed and explained to the appellant at a meeting prior to the

offers being made. At the AGM the reason for the same was explained. From that affidavit it is clear that the appellant was aware of

the broad details of the proposal from mid to late September 2003. He was informed of the rationale for the offer, the site valuations

and the reasons for the short notice of the EGM – related to a concern that tax benefits might be lost in the upcoming budget. The

appellant was in a position to make his views on the proposed offers known to other directors of Holdings and also to some of the

shareholders in Properties. He wrote to shareholders on the 30th September 2003. There were several meetings between Michael Paul

Walls and the appellant prior to the EGM. A detailed statement in relation to the scheme was made at the EGM. The appellant had

separate meetings with Michael Paul Walls, Liam Walls, Pat Veale a director of Holdings and Shaun Greene, financial controller of

Holdings to discuss the offer. As already remarked the appellant was in a position to obtain legal advice and to form a firm decision to

reject the offers by the 15th October 2003.

The appellant has not satisfied me that he was not informed as to the purpose of the scheme or given particulars of the scheme

generally. Accordingly on this ground also the appellant fails.

Holdings dividend policy

The appellant had one major and overriding objection to the scheme which led him to reject the offer. This related to the difference in

dividend policy between Holdings and Properties. Properties regularly paid dividends where possible and commercially appropriate.

Holdings notwithstanding its ability to do so has not declared a dividend for upwards of twenty years, save in one year only. This was

an issue which concerned the appellant and also some other shareholders. In 2002 Holdings had retained profits of €2,700,000 and

net assets of €24,000,000 and other reserves of €22,400,000. Liam Walls and Michael Paul Walls have control of the Board of

Directors of Holdings and the appellant’s concern is that this policy on dividends will continue.

It is important to note that this concern is one shared by other shareholders in Holdings. Notwithstanding this other shareholders have

accepted the offer. This to me is significant. Also significant is the circumstance that the scheme allows the release to the appellant

and the other shareholders in Properties of a substantial amount of cash so that the dividend policy in Holdings in the future. Should

the policy continue, is unlikely to give rise to the same contention within Holdings. It is, of course, the entitlement of individual

shareholders to continue to raise their concerns at Board level, if members of the Board, or at general meetings. The appellant’s

concern, and indeed his sense of grievance, at the dividend policy is readily understandable. He is a medical doctor. He is not

engaged in the day-to-day running of the Walls companies. Other members of the family are and while he does not so depose I would

assume that they received reasonable remuneration. Whatever else may be said about the dividend policy in Holdings it is not

designed to achieve family harmony. If the policy should continue and is oppressive it may be that other remedies are available to a

dissatisfied shareholder. Having regard to the shareholding of the appellant in Properties he could not on his own ensure that the

dividend policy which he favours would continue indefinitely.

The correct approach for the court is to have regard to the interest of all the shareholders in Properties. The heavy onus on a

dissenting shareholder must also be borne in mind. Taking these matters into account the historical dividend policy of Holdings which

contrasts with that of Properties, has not been shown by the appellant to be unfair.

For the foregoing reasons I am satisfied that the appeal must fail.