Aveling Barford Ltd v Perion Ltd [1989] BCLC 626 is an English company law case concerning reduction of capital. It held that a sale at an undervalue of an asset was a dressed-up distribution. As the company did not have distributable reserves, the sale was in consequence an unlawful reduction of capital.
| Aveling Barford Ltd v Perion Ltd | |
|---|---|
| Court | High Court |
| Citation | [1989] BCLC 626 |
| Keywords | |
| Reduction of capital | |
The law in relation to the transfer of assets at an undervalue has been clarified in CA 2006, and the amount of the distribution arising in consequence of a sale at undervalue is now determined in accordance with section 845.
Facts
editMr Lee owned and controlled both Aveling Barford Ltd and Perion Ltd. Aveling Barford owned a country house and 18 acres of land in Grantham, which it sold to Perion £350,000, rather than the £1,150,000 it had been valued for prospective mortgagees. Aveling Barford subsequently went into liquidation, and the liquidator sued to have Perion be declared a constructive trustee of the proceeds realised by Perion on the resale of the property.
Judgment
editHoffmann J held that it was a breach of the directors' fiduciary duty to sell the property at an undervalue. Given the relationship between the parties, the sale at an undervalue represented a distribution, and as the sale amounted to an unlawful reduction of capital, it was incapable of ratification. The transferee was therefore accountable as a constructive trustee. ‘This was a dressed up distribution’, it was ultra vires and incapable of ratification.
The rule that capital may not be returned to shareholders is a rule for the protection of creditors and the evasion of the rule falls within what I think Slade LJ had in mind when he spoke of fraud on creditors.
See also
edit- UK company law
- CA 2006 s 845
- Progress Property Co Ltd v Moorgarth Group Ltd [2010] UKSC 55