Last month, the Scottish Court of Session Outer House delivered a decision that illustrates the pitfalls that await executive shareholders implicated in commercial bribery.
The case concerned whether or not the affairs of a transport and liquid freighting company were being carried on in an unfairly prejudicial manner to the interests of the former chief executive and associated shareholders.
The then chief executive had been locked in a bitter boardroom and shareholder struggle. His opponents then discovered that a bribery arrangement had been put in place with one of the employees of a U.S. customer who would direct extra business for payment.
With the chief executive travelling in New Zealand, rival board members instigated an independent internal investigation, with a view to pre-reporting to the Crown Office, which concluded that the chief executive and finance director had indeed known of the scheme which led to their dismissal for misconduct.
The former chief executive then commenced “unfair prejudice” proceedings with a view to realizing his substantial shareholding at a fair or market value.
Although the Court upheld a number of his complaints of unfair prejudice in the form of withholding financial information and the removal of auditors, his involvement and knowledge of the bribery arrangement placed him in the position of “a bad leaver” under the terms of the company’s articles. As such, he was only entitled to 75% of par value or fair value, whichever was lower. This amounted to a difference of approximately £18 million ($27 million).
The decision, which involved the high-risk sector of shipping and freighting, illustrates how the consequences of the Bribery Act 2010 in a commercial context belatedly came to be appreciated by those involved, how the pre-reporting investigation and disciplinary proceedings unfolded, and how eventually it provided an unintended “silver lining” for non-implicated board members in ousting and acquiring shares at discounted values.
The opinion of Lord Tyre In the petition of Nigel Gray & Others for Orders pursuant to sections 994 and 996 of the Companies Act 2006 in respect of Braid Group (Holdings) Limited is here.
Alistair Craig, a commercial barrister practicing in London, is a frequent contributor to the FCPA Blog.