The inclusion of leaver provisions in a company’s articles of association can lead to disagreement as to how they should apply, so it’s always welcome when the court sets out guidance on such matters.
The Court of Appeal recently highlighted the importance of commercial common sense and reasonableness in deciding that a retiree shareholder was entitled to be paid Fair Value for his shares on leaving the company, despite the wording of the company’s articles of association.
The corporate team at mfg Solicitors advise companies and directors across all sectors on their articles and other corporate agreements.
What was the issue?
The case of Syspal Capital Ltd v Truman [2025] EWCA Civ 469 concerned the leaver provisions in Syspal’s articles of association. Leaver provisions determine the treatment of the shares held by a shareholder on leaving the company.
Mr Truman was a director of Syspal Holdings Limited - the holding company of a group of manufacturing companies - and held 24% of its shares (the company, Syspal Capital, owned the remaining 76%). He was also an employee of one of its subsidiaries (Syspal Limited).
On 10 October 2022, Mr Truman was dismissed as an employee of the subsidiary but remained as a director of the holding company. He reached 65 years of age on 24 May the following year and retired as a director from the holding company.
The leaver provisions within the company’s articles included the following:
“If any Employee Member shall cease for any reason (including but not limited to death or termination of employment by the Employee Member or Company) to be employed as an employee, director or consultant of a Group Company (and does not continue in that capacity in relation to any Group Company) then a Transfer Notice shall be deemed to have been served … on the date of such cessation.”
The dispute concerned just three words: ‘in that capacity’. At issue was: on what date was the share transfer notice served - the date he was dismissed as an employee of the subsidiary or the date he retired from the holding company? This was significant because if the date of service was on Mr Truman’s retirement as a director from the holding company, he would receive Fair Value for his shares. But if it was the date he was dismissed as an employee of the subsidiary, he would receive ‘Market Value’ – which would be subject to a discount on the sale of a minority shareholding and, as such, in this instance of lesser value than Fair Value.
The High Court had earlier given the words ‘in that capacity’ their natural meaning, such that they meant any of the three listed capacities in the provision i.e. employee, director or consultant rather than only to the singular capacity of ‘employee’.
The appeal court agreed on the basis of commercial common sense. The judge said it was clear from the articles’ provisions that the default position was that shares were to be sold at Fair Value. “If that was the value to be applied where a Member who was not employed in any capacity by a Group Company transferred their shares,” he added, “it was difficult to see why a lower value should be forced on, for example, a director who held shares but relinquished his role as a consultant.”
The transfer notice was therefore deemed to have been triggered on Mr Truman’s retirement date from the holding company and he was entitled to be paid Fair Value for his shares.
Key takeaway
The case upholds the longstanding approach of the courts to the interpretation of business agreements: commercial common sense and reasonableness are key factors in the court’s determination.
We would encourage company owners to review their leaver provisions in light of the decision and ensure they are clearly drafted to reflect commercial realities and minimise any risk of a dispute. For specialist advice and help in reviewing your documentation, contact the experienced corporate and commercial team at mfg Solicitors. Get in touch with Sophie Thornton by emailing Sophie.thornton@mfgsolicitors.com or calling on 01905 610410.