+46 8 791 8944 support@translegal.com

Reading an extract from a memo (1)

Please purchase the course before starting the lesson.

After further investigation, Dom becomes convinced that Pearl-e-whites.net would be an unsafe investment. Instead, he sets up his own successful networking site for dentists.

Two years later Katy sends Dom an extract from a memo of recent cases.


Directors disqualified for maximum 15 years

Secretary of State for Trade and Industry v Everidge and Brackett.
[2008]

Two directors have been disqualified on the ground of unfitness for the maximum period of 15 years.

Mr Paul Everidge, Mr John Brackett and Mr Franklin Shrubberey became directors of Pearl-e-whites.net plc in November 2003 following a proxy fight initiated by a group of dissident shareholders. Capital Ventures plc acquired a controlling interest in Pearl-e-whites.net plc ten months later. By the end of 2004, Shrubberey Everidge and Brackett were all directors of Capital Ventures plc. In 2005, Everidge resigned from office and Brackett and Shrubberey were removed from office by shareholders.

The secretary of state applied to disqualify Everidge and Brackett on the grounds of unfitness (Shrubberey died shortly after Pearl-e-whites.net plc went into receivership). The court found that Everidge and Brackett had procured Capital Ventures plc to acquire shares in Pearl-e-whites.net plc knowing it to be hopelessly insolvent and knowing that it had no prospect of honestly discharging its huge liabilities (of nearly £1.2m, as opposed to its assets of around £400 000).

Shortly before the acquisition of Pearl-e-whites.net plc by Capital Ventures plc, Everidge and Brackett had attempted to increase the market value of Pearl-e-whites.net by borrowing heavily in order to finance a buyback of shares. This buyback was intended to improve the earnings per share ratio by reducing the outstanding equity. For this strategy to work in the long term, the stock should truly be undervalued (which was not the case). Such buyback is permitted without the sanction of the court, although the court found that the two directors had acted dishonestly throughout this period by preying on the vanity and gullibility of would-be investors.

Both Everidge and Brackett were disqualified for the maximum period of 15 years. An investigation into funds missing from the redemption reserve set up to finance the proposed reduction in share capital following buyback is still ongoing.

Back to: Plead > Part D