UK: England and Wales: the exercise of directors' powers

Judgment was given today in Ford v Polymer Vision Ltd [2009] EWHC 945 (Ch). There were several issues before the court, in an application for summary judgment, including directors' authority and the operation of Section 40 of the Companies Act (2006). The trial judge also considered the power of the directors to grant an option, capable of exercise within a ten year period starting on 3 February 2009, whereby an individual - Mr Ford - was entitled to purchase all of the assets and undertakings of a company - PVL - for a sum equal to the company's "actual liabilities and indebtedness". The trial judge observed (paras. [87] - [89]):

It is well established ... that whether the directors of a company have exercised their powers properly or improperly is not to be determined simply by what the directors genuinely believed, so that if they genuinely thought that the company's best interests were served by the transaction and they were not motivated to any degree by personal considerations that is an end of the enquiry. The power in question - in the instant case a contract to dispose of PVL's assets - has to be exercised for the purpose for which it was conferred.

There are three noteworthy features of the Option Agreement. The first is that it involves a commitment by PVL, if the option is exercised, to dispose of the whole of its assets and undertaking to Mr Ford. The second is that the price payable on exercise of the option is not related to any assessment of the value of the assets and undertaking; instead, it is limited to the amount of PVL's liabilities at the time of exercise of the option. The third is that the option is granted for a period of ten years so that PVL's position might have changed radically and for the better by the time that Mr Ford should choose to exercise the option.

I consider that it is at the very least arguable that committing PVL to the disposal of all of its assets and undertaking on such terms was an improper exercise by the directors of their powers ... At all events, I would need rather more evidence of PVL's circumstances and what its assets and undertaking were realistically worth and why it was thought right to confine the option price simply to PVL's liabilities and grant the option for so lengthy a period before coming to any conclusion on the propriety of the action of [the directors] in resolving to commit PVL to such a transaction".