Court of Appeal judgment in “corporate raiding” case

14/05/14

The Court of Appeal has handed down judgment in JKX Oil & Gas plc v Eclairs Group Limited and Glengary Overseas Limited, allowing an appeal by JKX against a judgment of Mr Justice Mann dated 30^th August 2013 and dismissing a cross-appeal by Eclairs.

Mr Justice Mann had found that in 2013, the Board of JKX reasonably perceived that the company was being “raided” by Eclairs and Glengary, which are investment vehicles beneficially owned by the oligarchs Mr Igor Kolomoisky, Mr Gennadiy Bogolyubov, and Mr Alexander Zhukov. In particular, the board of JKX reasonably feared that Eclairs and Glengary were jointly attempting to destabilise the company by replacing senior management and obstructing necessary fund raising in order to acquire JKX or its assets at less than proper value.

In consequence the board had served a number of notices under section 793 of the Companies Act 2006 and the company’s Articles of Association seeking disclosure of information about the interests in Eclairs’ and Glengary’s shares, including whether Eclairs and Glengary (and those behind them) were party to any agreements or arrangements relating to the exercise of the voting rights conferred by the shares.

When the responses came in the Board considered them to be false or materially inaccurate and accordingly, pursuant to a power in the JKX Articles, it imposed restrictions which prevented (inter alia) the voting of the Eclairs and Glengary shares. This occurred 6 days before the annual general meeting of JKX on 5 June 2013, at which (as the Board knew) Eclairs and Glengary were intending to oppose certain proposed ordinary and special resolutions, which would have had the effect (inter alia) of removing the Chief Executive and obstructing the company’s ability to raise capital. The effect of the restrictions was to prevent Eclairs and Glengary from voting at the AGM and thus giving effect to their opposition.

Following an urgent application for interim relief made by Eclairs and Glengary in advance of the AGM, an expedited trial took place in July 2013 concerning the validity of the Board’s decision to impose the restrictions. Mr Justice Mann found that the Board was justified in the view it had reached as to what was happening, and as to the inadequacy of the responses to the section 793 notices.  However, he held that the Board had acted wrongly because it had exercised its power primarily to protect the company by restricting Eclairs and Glengary from exercising their voting rights at the AGM as opposed to extracting information from them, which he considered to be the only permissible purpose of imposing such restrictions.

By a majority (Longmore LJ and Sir Robin Jacob, Briggs LJ dissenting), the Court of Appeal has held that Mr Justice Mann erred in holding that the restrictions were defective for improper purpose, and that Eclairs and Glengary were victims of their own failure to answer the section 793 notices properly. The Court unanimously dismissed a cross-appeal by Eclairs on the validity of the 793 notices and the “reasonable cause to believe” issue.

Eclairs and Glengary have been given permission to appeal to the Supreme Court.

The judgment is here.