CASE STUDY

Shares purchased allegedly in reliance on false representations
Shareholder / Partners Dispute

Mr H purchased shares in 'ABC Plant Hire Ltd' in reliance on representations made by Mr L as to the assets and profitability of the business and as to the use to be made of the monies to be paid by Mr H for his shares. In effect Mr L said that he owned the majority of shares in the company and the monies to be paid by Mr H would be invested in the business to enable it to grow. Mr L also asserted that the company "Had assets of £X" (but made no mention of liabilities). Mr H did not see any accounts of the company before purchasing the shares and did not seek professional advice. The company subsequently failed. Mr H then claimed that Mr L had misrepresented the worth of the business, Mr L's shareholding in it, and the use to which Mr H's money was put. I was instructed, on behalf of Mr H, to value the shares purchased by Mr H alternatively (1) on the basis of the representations allegedly made by Mr L, and (2) on the basis of the figures in the accounts of the company (which Mr H had not seen). I was called to give evidence when the case came to the High Court and was subject to cross-examination. Ultimately the court decided against Mr H as he had failed to take adequate steps to renounce the purchase contract (and return the shares to Mr L) when he concluded that he had been a victim of misrepresentation.

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