Friday 26 November 2021

UK: England and Wales: equitable constraints and unfair prejudice

Last week - a week ago today, in fact - the Court of Appeal delivered its judgment in Loveridge v Loveridge [2021] EWCA Civ 1697. I note the decision here because of the discussion it contains regarding the scope of equitable constraints in the context of claims for unfair prejudice under section 994 of the Companies Act 2006. One of the alleged equitable constraints related to the circumstances in which a director could be required to repay a loan received from the company. Mrs Justice Falk (with whom Nugee and Bean LJJ agreed) stated (at para. [95]): 

"As Lord Hoffmann explained in O'Neill v Phillips at p. 1099F-G, 'a balance has to be struck between the breadth of the discretion given to the court and the principle of legal certainty'. In circumstances where a loan is interest free and legally repayable either immediately or on demand, it seems to me that the court should be very reluctant to impose equitable constraints that, if recognised, would fetter the exercise of directors' duties and could in reality significantly impair the value of the chose in action that the loans represent".

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