A Failed Attempt to Force a Sale of Shares

Bailey Ahmad Holdings Ltd v Bells Holdings Ltd (2023) EWHC 2829 

Our view is that this case was a failed attempt to force a sale of shares by trying to intimidate the opposition with court proceedings. The case was so poorly conceived that the Court considered the Claimant’s case was based on an “unarguable legal analysis”, suggested that the Claimant had used the wrong procedure to bring the case and even issued proceedings in the wrong court. 

The case concerned a dispute between the two shareholders of Omer & Company Accountants Ltd (the Company), an accountancy business. 

The company’s shares were divided between Bailey Ahmad Holdings Ltd (Bailey/Ahmad), which owned 40% and Bells Holdings Ltd (Bells), which owned 60%. Bailey/Ahmad was owned equally by Messrs Tomasso Ahmad and Mr Paul Bailey. Bells was solely owned by Ms Joanne Bell. 

Baily/Ahnad’s case was that under the Articles of Association and Shareholder Agreement of the Company, they had the right to consider Bells as a “Defaulting Shareholder” and so trigger provisions within the Articles that enabled them to force a sale of Bells’ shares. 

They issued a Part 8 Claim in the Kings Bench Division of the Commercial Court for a declaration that “the Claimant is entitled to rely on the Defaulting Shareholder mechanism of the …  Agreement … and the Articles … based on the Claimant’s honest belief in a material breach by the Defendant rather than requiring prior judicial determination of the presence or absence of material breach.” 

The Main Issue

At heart, the case turned on clause 14.1.1 of the Articles. Could Bailey/Ahmad force a buyout based solely on their honest belief that Bells had committed a material breach of the Shareholder Agreement without proof or court determination of any actual breach?

What the Articles said:

Article 14.1: Defines a “Compulsory Transfer Event,” including where a shareholder “commits a material or persistent breach” of any shareholders’ agreement and fails to remedy it within 14 business days of notice.
Article 14.2: If such an event occurs, the shareholder becomes a “Defaulting Shareholder.”
Article 14.3: Allows the “Non-Defaulting Shareholder” to serve a Default Transfer Notice, forcing sale of all the Defaulting Shareholder’s shares at fair value set by an expert.

Force a Sale of Shares - business dispute

The Court’s Reasoning

Deputy High Court Judge Ian Wilson KC held the language of Articles 14.1–14.2 was “simple, plain, clear and familiar.” A Compulsory Transfer Event (and thus Defaulting Shareholder status) only happens if one of the listed events actually occurs. The non-defaulting shareholder’s belief, honest or not, is irrelevant.

The judge rejected Bailey/Ahmad’s bid to imply words like “when one of them considers the other to have committed a material or persistent breach.” He called this not sensibly arguable, noting no authority supports converting an objective event trigger into a subjective honest belief regime. The claim failed at the first hurdle.

Misusing Part 8 Procedure

Bailey/Ahmad issued proceedings using the CPR Part 8 procedure, meant for claims with no substantial factual dispute needing oral evidence. But their case hinged on interpreting the Articles, obviously raising disputed issues such as the allegations of a “material or persistent breach” and their honest belief.

CPR Part 7 was obviously the correct procedure to use, which is designed to help the Court establish the reality of competing positions.

Filed in the Wrong Court

To add a further error on the part of the Claiant, they issued in the King’s Bench Division (Commercial Court), not the Chancery Division. Shareholder disputes over private company articles belong in Chancery, per CPR Practice Direction 7A. The court transferred it, but the initial venue was another strike against them.

Why This Case Matters

This case is important because it decisively shuts down attempts to hijack shareholder agreements for coerced buyouts, clarifying that honest belief in a breach doesn’t trigger compulsory transfer mechanisms like Article 14 as only proven, objective events do.

By lambasting the claim as unarguable and flagging procedural blunders, this case should stand as a warning to deter bullying tactics and so avoid costly missteps in Chancery disputes.

Let’s Talk

Don’t let a shareholder dispute derail your business. If you’re facing breach claims, forced sales, or agreement ambiguities, please book a free 30-minute consultation with our specialist team on this page or contact us.