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Spurs: Venables cries foul

Practical Law UK Articles 9-100-4031 (Approx. 6 pages)

Spurs: Venables cries foul

by NATING GROUP
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The unfair prejudice action launched by Terry Venables under section 459 of the Companies Act 1985.
Football and the City rarely make good bedfellows. Shares in
soccer clubs are notoriously speculative investments and share
registers often reflect this. A few individuals who run the club
generally hold most of the shares; the rest are held by fans who
proudly hang their share certificates on bedroom and office walls.
(Many were no doubt delighted to hear of the demise of Taurus!)
Tottenham Hotspur is no exception. Alan Sugar controls about 47
per cent. of the shares and Terry Venables 23 per cent. (each
through their private companies - Amshold Ltd (Sugar) and Edenote
Ltd (Venables). Tony Berry holds approximately 5 per cent. and the
rest are divided between about 10,000 small shareholders most with
only one or two shares.
The Tottenham share register is thus in many respects similar to
that of a private company. But the fact that it is a public listed
company makes the current dispute between Venables and Sugar
interesting from a legal perspective.

The "dream ticket"

Venables and Sugar rescued Spurs in June 1991 when each took
about 18 per cent. of the club's shares on a 50/50 basis. They were
perceived as the "dream ticket": Venables would look after football
and Sugar, business.
According to Venables, they then agreed that he would remain a
director and chief executive of the club and Mr Sugar, director and
chairman.

The rights issue

It is said that that agreement continued unchanged, even though
in December 1991 Sugar was able to take up more shares in a
Tottenham rights issue. After the rights issue Sugar controlled
approximately 47 per cent. and Venables 23 per cent. of the
shares.
But relations between the men steadily deteriorated, culminating
in a board meeting on 14th May this year when the Tottenham board
by majority summarily determined Venables' service contract; in
consequence he ceased to be chief executive. Venables was
disqualified from voting at the meeting. Tony Berry abstained but
made it clear that if necessary he would have voted in favour of
the removal resolution.

Unfair prejudice action

In response to Venables' sacking, Edenote launched unfair
prejudice proceedings under section 459 of the Companies Act
1985.
Its case is that, acting through Venables, Edenote as a member
had expectations about the employment of Venables as chief
executive deriving from the oral agreement to that effect between
Sugar and Venables. Sugar disputes that any such agreement ever
existed.
Venables seeks an order for the transfer of Sugar's shares to
him. The court has express power to grant this remedy in an unfair
prejudice action (section 461 (2) (d) the Companies Act
1985)

Venables remains a director

Terry Venables remains a director of Tottenham. Directors can
only be removed from the board in limited circumstances. Much
depends on a company's articles of association.
Tottenham's articles contain a provision that if a director is a
full-time employee of the group he can no longer remain on the
board if his full-time employment ceases (unless the other
directors resolve otherwise).
But this article did not apply because Venables' services had
effectively been split between a service contract directly between
him and the club and a second contract between the club and Edenote
for his services.
This latter contract was presumably entered into for tax reasons
along similar lines to the John Birt/BBC contract. But its effect
has been to protect Venables' board position - at least for the
time being.
Shareholders can remove a director by a simple majority vote
notwithstanding anything in the company's articles of association
or other agreements (section 303 of the Companies Act 1985
).
If, as it appears, Sugar has the support of Tony Berry, he could
put together the bare majority needed to pass such a resolution.
Instead, Sugar has chosen to let Venables stay as a director, using
a board meeting to terminate his contract of service and position
as chief executive.
Unfair prejudice procedings are difficult to invoke by a
director who has been removed by a shareholder resolution. But it
is unlikely that a court would refuse to grant an unfair prejudice
action in favour of a member just because the majority shareholder
had chosen to use its shareholding to secure removal rather
dismissing him as an executive through its control of the
board.
Perhaps Sugar wishes to avoid the publicity of a shareholder
vote, hoping to settle things quietly behind closed doors. If so
things have not worked out as planned!

Ex parte injunction

On launching the unfair prejudice action Venables also sought,
and was granted, an ex parte injunction preventing his dismissal as
chief executive. This was somewhat surprising as it effectively
resulted (albeit briefly) in specific performance of his employment
contract. In most cases courts refuse to order specific performance
of service contracts, given their personal nature.

The interlocutory hearing

This injunction was lifted by the Vice Chancellor at an
interlocutory hearing. At the same hearing, Sugar stated that he
would not remove Venables from the board pending the trial of the
unfair prejudice action.

Will Venables succeed?

From a legal perspective Venables faces an uphill struggle in
his unfair prejudice action.
The unfair prejudice provisions are difficult to invoke when the
matter complained of relates more naturally to a director as such,
rather than to his position as a member (Re Five Minute Car Wash
Limited [1966] 1 All ER 242).
The courts have begun to entertain applications under the
provisions on a wider basis - if a person becomes a member with a
"legitimate expectation" of a part in controlling the company's
affairs, a petition will not be dismissed because there is no
"member's right" to such participation (Re XYZ Ltd [1987] PCC
92).
But the provisons are aimed primarily at disputes between
shareholders in private companies that are quasi-partnerships. It
would be surprising if the court extends its application to a
dispute between shareholders of a public listed company - albeit
one with a shareholder profile similar to a private company.
This would have serious implications. Notably, it would give
legitimacy to "side deals" between shareholders about the
management of listed companies that are not disclosed in public
documents. In the Blue Arrow case (Re Blue Arrow plc [1987] 3
BCC 618), the judge (Vinelott J) was critical of such deals. He
stated that investors in a listed company are entitled to assume
that the whole of its constitution is contained in the articles of
association, together with the Companies Acts. There was no room
for any legitimate expectation founded on an agreement between
directors and not disclosed to those placing shares with the
public.
At the time of the Venables/ Sugar rescue and later at the time
of the rights issue in December, nothing about any side agreements
was disclosed to shareholders.
As the Vice Chancellor pointed out "the case that in those
circumstances Mr Venables or Edenote or other members nevertheless
had an expectation which the Court should now recognise and give
effect to in the running of this public company is ... fraught with
difficulty".
If the action succeeds, Venables will probably have to make a
mandatory bid for the rest of Tottenham's shares (Rule 9 of the
City Code on Takeovers and Mergers) . This is likely to be an
expensive exercise.
If the action fails, Venables will be left in the uncomfortable
position of all minority shareholders who have fallen out with the
majority. He will have tied up a considerable investment but
will no longer be able to improve its value through his hard work
as chief executive. Nor can he play the public relations card too
hard because he cannot afford to damage the club and his investment
by capitalising on the fans' support for his pos-ition.
CJM

Minority shareholder protection

Terry Venables' predicament highlights the difficulties of
minority shareholders who fall out with the majority - particularly
in public companies.
A disgruntled minority shareholder has few options (short of
selling its stake) if it falls out with the majority over the
management of the company.
If a minority shareholder holds more than 25 per cent. of the
voting shares it will have the power to block special or
extraordinary resolutions, covering such matters as resolutions to
disapply statutory pre-emption rights on new issues or to alter the
articles.
A minority shareholder cannot however block ordinary resolutions
(which require a simple majority of votes). Subject to contrary
provisions in the articles of association or other contractual
arrangements a simple majority will suffice to appoint and dismiss
directors, increase share capital, sanction the issue of shares and
declare dividends.
In extreme circumstances, a minority shareholder can mount a
successful unfair prejudice action under section 459 of the
Companies Act 1985. There are a wide variety of orders that a court
may make in such an action. But the remedies under section 459 are
generally confined to disputes within private companies,usually
those which are quasi-partnerships, and would rarely be granted in
the case of a dispute concerning a public listed company.
An application could be made for an order to wind up the company
on "just and equitable grounds" (section 122(1)(g) of the
Insolvency Act 1986). But again this remedy is generally only
available in quasi-partnership situations.
Given the limitations on the remedies available to disgruntled
minority shareholders, it is essential that they should seek
protection either in the company's memorandum or articles of
association or other contractual agreements.
Shareholder agreements to vote shares in a certain way (for
instance, in relation to the appointment of a director) are not
necessarily disclosable unless they are caught by section 204 of
the Companies Act 1985 (agreements to acquire interests in a
particular company).
It would be unusual for the articles of association of a listed
company to provide that a certain shareholder (or shareholders) has
the right to appoint board members. There is however a precedent
for this in the rights attaching to the government's "golden
shares" in a number of privatised companies.
In the case of listed companies, Courts are unlikely to
entertain unfair prejudice actions based on expectations derived
from side deals between shareholders not disclosed to all
shareholders (Vinelott J, Blue Arrow [1987] 3 BCC 618).
End of Document
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Resource ID 9-100-4031
© 2024 Thomson Reuters. All rights reserved.
Published on 01-Jul-1993
Resource Type Articles
Jurisdiction
  • England
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