Company Director’s Claim After Take-Over Bid

Press, Volume CII, Issue 30130, 14 May 1963, Page 15

Company Director’s Claim After Take-Over Bid

A claim for £1169 by Frank Louis Anderson, a company director, who holds 13.360 shares in Royds Bros. B nd Kirk 'Christchurch), Ltd., against Grocers United Stores. Ltd., is being heard in the Supreme Court before Mr Justice Wilson. The plaintiff alleges that the defendant company made a take-over bid for Royds Bros, and Kirk. He alleges that this offer was accepted by Royds Bros, and Kirk, Ltd. on behalf of shareholder.' The plaintiff further says that G.U.S. purported to w thdraw this offer and subs itute another, offering a

lower figure for the shares. The plaintiff’s claim is based on the difference between the two offers. The court is asked, in effect, to decide whether the first' offer was in enforceable contract. The defendant company der.es that it received an unqualified acceptance of the first offer. The plaintiff's case had been part heard when it was adjourned until today. Mr E. S. Bowie and with 1.. m Mr E. J. Somers are appearing for the plaintiff and Mr P T. Mahon represents the defendant company.

In his opening submissions Mr Bowie said that shareIders of Royds Bros, and Kirk. Ltd., attended the final

eeting of the company on December 14. Their solicitor

had just explained a trust deed relating to debentures when a letter was handed in from GU.S. withdrawing the take-over offer.

The following day a letter was received from G.U.S. offering a reduction of 4d a .'■hare, or £5566 less than the take-over bid. At this stage share transfers amounting to 58 3 per cent, had been received. G.U.S. salesmen were doing the rounds of' Royds Bros, and Kirk A Ltd. and in fact G.U.S. was in control of the organisation. Mr Bowie submitted that C-.U.S. did not believe its own intention to withdraw, that it had found the recep:on by Royds Bros, and Kirk’s customers was not as welcome as at first thought, and that, "tongue in cheek - ' GU.S. was trying to get a reduction in price, well aware it had already taken over. It was a test case, said Mr Bowie. If the Court held the contract was binding, then the parties had agreed they could assess damages. In the statement of claim it was alleged that the defendant company had contracted to buy the shares at 5s 9d each, that the purchase price payable to the plaintiff was £3841 and that on December 14. the market value of the shares held by the plaintiff i being the date of the repudiation by the defendant of its contract to purchase the shares) was 4s and the

repudiation in a loss of Is 9d a share or a total loss of £1169.

In the statement of defence G U.S. denies the allegations that it is liable for damages

to the plaintiff for breach of contract It is admitted that offer to shareholders included an offer to purchase at 5s 9d per share. The defendant says that the terms of a letter did not amount to an unqualified acceptance at 5s M a share, v, l-.ich was denied, as rhe s .tireholders still reserved the right to reject, if necesfury, certain debentures. The

letter of December 3 was not ms acceptance by the shareholders but was merely an intimation by the directors of Royds Bros, and Kirk. Ltd., that they approved of the price of 5s 9d a share and t uat they would recommend their shareholders to accept the offer. Plaintiff's Evidence

In evidence Anderson, a director of Royds Bros, and K«rk. Ltd., said he held 13.360 iliares of ss. , A meeting of d:r«jtors was held on October 16 when a request.

tinx>ugh Mr D. Hindon, was brought to the notice of the bused. Representatives of the defendant company were present at a shareholders’ meeting on November 20. Their offer to Royds Bros, and Kirk was discussed. After the meeting of shareholders and directors witness signed a transfer of his shares to the defendant company. It was m before the withdrawal of the offer. The document was dated December 10 and She date was in the secretary’s writing. Anderson said he was present at a meeting of directors o.i December 10. Representatives of the defendant company were present. They were Mr Stonestreet. Mr Papprill and another person. Debentures were discussed. “The meeting was to arrange t±»e best security we could for the debentures. We accepted the debentures on the advice of our solicitors Three points were raised One, the question of unlimited overdraft; two, the question of first debentures and their possible extension; three, the amount of this particular issue for debentures and further debentures. “We hoped that GU.S vould agree to limit all three. Mr Stonestreet agreed that the third issue, the issue cf our own debentures, should be Limited, but he wasn’t p-epared to take any action in the other two without reference to his directors.” said Anderson.

To Mr Mahon. Anderson said when he first heard thart there was a proposal that GU.S would pay partly in cash and partly by debenture he very much disliked the idea of debentures because he doubted ‘he security behind them This view was not held by other shareholders to any great extern

Anderson agreed it was correct that in the beard meeting minutes of November 6 he vas reported as saving that the weakness of the proposition was the financial position of G.aS and he wanted definite assurances *hat the debenture issue would be sound Mr Mahon: In the las: phrase you raised the supposition that there may be no substance to the offer. Correct.

All the directors had scene anxiety about the payment by way of debentures, Anderson said.

Mr Mahon: Didn’t all the directors take the view that they could not recommend to shareholders that they sell unless the debenture issue had been fully investigated and found satisfactory?—l don’t think that was ever expressed.

Were the directors prepared to recommend the sale without investigation of the debentures?—No. • Price of Shares

The company’s solicitors had said the debentures were reasonably sound. On December 3 it was decided that acceptance was in the interests of the company’s shareholders, said Anderson. At the meeting on November 20 a motion passed referred to the price of 6s per share each or 6s 3d on terms.

Mr Mahon: Would you tell me how that motion gave the directors authority to sell at 5s 9d?—The meeting decided to sell on the best possible terms. Wasn’t the feeling of the meeting that 5s 9d was too little and they should have 6s cash or 6s 3d on deberitures?—Yes. I think so. But the meeting also saw it was possible the directors would not be able to get those prices and although not expressed in the resolution, the feeling was that the directors should accept the best offer. Wasn’t it your intention that you were not going to hand the share transfers over to G.U.S until you got the shareholders’ authority on December 14?—Definitely not.

Why weren’t the share transfers registered and handed over after 51 per cent, had been received?— I couldn’t say.

Were some of the shareholders not satisfied with the arrangements about debentures at the meeting of December 14? —Yes, but they were prepared to make the best of a bad bargain. Would you agree the letter of revocation reached the shareholders’ meeting before they had a chance to discuss debentures? 1 would not be sure on this point. Thomas Algie Leitch, solicitor for Royds Bros, and Kirk. Ltd., said the trust deed

received from Mr Papprill was not in the terms of his recollections of the meeting of November 20. He asked the secretary to hold a meeting of directors as soon as possible. Witness advised the directors to improve the terms of the debentures. Because of the letter of December 3 he advised the directors that it was a concluded contract and little could be done to object to the terms of the trust deed.

A meeting of shareholders was held on December 14. The chairman of directors told shareholders that two 'other firms which might have been interested had not made offers.- This was being explained to shareholders when the letter arrived withdrawing the offer. Whether the offer could be accepted from G.U.S. had not been discussed. He had told shareholders they could not object to the terms of the debentures but as they had not known of the terms they should be given an opportunity of considering them. To Mr Mahon Leitch said he returned the deed draft unperused because the contract had been concluded. He denied that Mr Stonestreet had been misquoted in the minutes, and that it was the value of the security the shareholders had to consider, to consider. Arthur Edward Amyes, secretary of Royds Bros, and Kirk, Ltd,, said the company had a share capital of £83,500 divided into 334.000 shares of ss. It was a public company and all the shares were fully paid. In October, 1962. he was approached by Mr Hindon. a stock broker, and asked for a copy of the balance sheet, said Amyes. He was told of a proposal to take over the company. This was brought to the notice of the directors.

A meeting was held on October 16 to consider the matter. A resolution was passed instructing him to give the required information when the identity of the inquirer was disclosed. It was G.U.S. and a meeting of the two firms was held on October 24. After a meeting on October 29 shareholders were notified that tjiey should not dispose of their shares and the stock exchange was informed of this. Amyes said.