Investor fails to acquire shares but gets money back plus interest

When investing in a business it’s important to have a written agreement clearly stating the terms and conditions that apply.

Failure to do so can result in costly confusion as occurred in a recent case before the High Court.

It involved an investor who put £50,000 into a business on the understanding that he would be entitled to a shareholding. When he asked for his shares, the company told him that their arrangement remained subject to contract. It claimed that their initial agreement had been for an investment of £250,000 and the exact details of how shares would be awarded had yet to be negotiated.

The investor took legal action, asking the court to decide whether he was entitled to a shareholding, and if he was not, to order the company to return his investment plus interest.

The court held that on the evidence presented in the case, the parties had not intended to be contractually bound, at least until the main terms had been agreed, and that had not yet happened.

It was not possible to conclude that the company had agreed to give any shares in return for £50,000 without the court having to fill in the gaps in an incomplete contract. That meant the court would be making a bargain for the parties which they themselves had never made. Therefore, the claim for shares had to be dismissed.

However, the court held that the investor was entitled to his money back, plus interest at 29.5%, which would have been the average rate available if the company had borrowed the money from a bank.

Please contact Jon Alvarez if you would like more information about the issues raised in this article or any aspect of contracts and investment matters.