In Richard Anthony Moxton v. Litchfield & Ors [2013] the court confirmed a company's bad leaver provisions and constitution when there were conflicts in drafting between the Shareholders' Agreement and Articles of Association and questions as to the legal enforceability of other agreements which might also affect the Articles. 

  • Mr Moxton was dismissed by the company. It proposed to treat him as a "bad leaver" within the terms of the company's Articles.
  • Articles provided that a bad leaver must transfer his shares on departure for a nominal consideration. A good leaver would expect "fair value" for his shares.
  • The Articles also provided that other relevant agreements, such as the Shareholders' Agreements were capable of supplementing or prevailing over the provisions of the Articles. 
  • A Side Agreement also existed between some shareholders: this set a price for the transfer of shares to Mr Moxton at a fixed price in order to rebalance shareholdings at the end of their EIS relief period .
  • Mr Moxton petitioned the court under section 994 Companies Act 2006 that the grounds for his exclusion from the company and its expropriation of shares were unfairly prejudicial to his interests as a member of the Company

The court noted differences between the Articles and Shareholder Agreement saying that "something has gone wrong with the drafting", it therefore relied on purposive interpretation in order to dicern their combined intended effect. It concluded that the bad leaver provisions applied.

The Side Agreement was not held to be legally binding. Had been binding EIS relief would not have applied and there was no evidence that the parties wished that to happen or regarded it as any more than a gentleman's agreement as such it did not affect the Articles.

The court found that Mr Moxton was guilty of gross misconduct and so a bad leaver by the Articles: there was no unfairness in the company's treatment of the shareholder.

The costs in taking case were "no doubt considerable", according to the judge. However the judgment confirms the enforceability of bad leaver clauses, which will be a relief to many as they are a feature of companies with investors and share schemes. Having reference in the Articles to other management agreements such as Shareholder Agreements is no bad thing on the proviso that they do not contain any conflicting provisions and that there are not too many such agreements. The Side Agreement featuring here could have been a costly embarrassment: had it been legally enforceable then HMRC might well have been interested in the case because of the EIS angle.


Richard Anthony Moxton v. Litchfield & Ors, Re LCM Wealth Management Ltd [2013] EWHC 3957 (Ch)