Trustees and sale of shares in private company

An interest in possession trust’s sole asset is a minority shareholding in a private limited company. The settlor is the majority shareholder of the company. The beneficiaries are the settlor’s son and remoter descendants. The settlor and his wife are the Trustees.

The company is going to be sold to a third party purchaser.

The trust follows a standard format from a drafting perspective (income to son during his lifetime and subject to that as the Trustees think fit; standard overriding powers) and the administrative provisions are in line with the STEP 1st edition standard provisions.

There is no express power to sell the shares (and also no express obligation to retain them) - but the trust deed does contain the general administrative power to manage trust assets: “The Trustees may effect any transaction relating to the management or disposition of Trust Property (NB: that definition includes the shares) as if they were beneficial owners. In particular: The Trustees may repair and maintain Trust Property; The Trustees may develop or improve Trust Property.”

The Buyer’s solicitor has stated that, because there is no clear/express provision confirming that the shares can be sold, the Trustees do not have the power to sell the shares.

The Trustees claim they do have the right, pursuant to the powers outlined above.

We act for the Company and are currently in agreement with the Trustees.

Any thoughts/opinions on this view and whether the Buyer has any real cause for concern here would be appreciated.

With regards the sale, it is likely the Trustees will give ‘title and capacity’ warranties only.

Elizabeth Cotton
Capital Law

To my mind, the most effective route forward may be to seek a supporting opinion from Chancery counsel.

The buyer’s solicitors will then need to be very sure of their ground to reject this.

Paul Saunders FCIB TEP

Independent Trust Consultant

Providing support and advice to fellow professionals

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I’ve always found it odd that standard admin powers often throw in the kitchen sink but not a clear express power of sale. It’s not necessary in law (as a power to sell is implied as part of a power of investment) but would save a lot of heartache - particularly in situations like this with non-trust lawyers on the other side.
Lewin 35-040 “A power to invest implies also a power to vary investments” and quotes Re Clergy Orphan Corporation (1874) L.R. 18 Eq. 280 and Hawksford Trustees Jersey Ltd v Stella Global UK Ltd [2011] EWHC 503 (Ch) at [124] (affd [2012] EWCA Civ 55; [2012] 2 All E.R. (Comm) 748)

I agree Paul’s suggestion may be necessary but you could try throwing Lewin (or, for bonus points, a judgment) at him first.

Andrew Goodman
Osborne Clarke LLP

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Hi Elizabeth,

The Buyer’s solicitor has stated that, because there is no clear/express provision confirming that the shares can be sold, the Trustees do not have the power to sell the shares.

The buyer’s solicitor is correct, but is then making the wrong assumption. The ‘power’ to sell the shares is vested by the Company Act 2006 s.770 Registration of transfer and the stock transfer form.

Regardless of any trust provisions, powers or acts, to sell the shares requires the trustees to send an instrument of transfer to the company, the directors may refuse to register the transfer. As discussed, the trustees have no powers or control over the share holdings. (The only exception is Transmission of shares – on death).

It is usual if shares are transferred to a trust (in this case it appears a family trusts), then the articles would include ‘drag along’ provisions. For more information see my book: Articles of Association: Guidance and Precedents

Richard Bishop

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