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Dashfield v Davidson, do your company’s articles reflect your intentions?

The recent case of Dashfield v Davidson (Ch.) 2008 highlights the importance of ensuring that a company’s articles of association reflect the intentions of the shareholders, particularly on the untimely death of a shareholder.

In this case a shareholder died unexpectedly having previously agreed to sell 100% of the share capital in a company, in circumstances where the company then purchased the deceased's shares under an article in its articles of association at less than market value. The company’s articles provided for the mandatory sale of his shares to the company at a value determined by the company’s auditors in accordance with a formula “per the last set of audited accounts”.

The audited accounts were available for 2002 and draft accounts were available for 2003 but these had not been signed off at the time of the death. The valuation was based on the 2002 accounts and gave a much lower figure that would have been the case under the 2003 accounts. The court held that the 2002 accounts were the ones upon which the valuation had to take place.

Clearly the estate of the deceased shareholder lost out as a result of the strict interpretation of the company’s articles.

If you are a shareholder in a private company and are in any doubt as to how your shares would be dealt with by the company on your death, please contact Roger Hinchliffe who is a specialist in this area of law.

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