Best Nation Investments Limited v Antow Holdings Limited
21 Sep 2018
Best Nation, a BVI company, held a majority 60% shareholding in a Chinese operating subsidiary, ZG. Best Nation was itself owned as to 60% by East Crown, also a BVI company and as to 40% by Antow. J was the majority shareholder of East Crown. The directors of Best Nation, who, together with others with whose interests they were aligned, were the minority shareholders in East Crown and controlled Antow and also XG, a Chinese company which owned the other 40% of ZG. In an attempt to end J’s control over ZG, through his majority shareholding in East Crown, the directors of Best Nation devised and implemented a scheme whereby Antow surrendered its shares in Best Nation in return for 40% of Best Nation’s assets in specie, i.e. 24% of the issued shares in ZG and a substantial sum in cash. Following this transaction, best Nation held 36% of the shares in ZG, Antow held 24% and XG held 40%. As the directors and their cronies controlled Antow and XG, they gained control of ZG and best Nation’s interest was reduced to a minority shareholding. The directors of Best Nation followed this with a second series of transactions the effect of which was to transfer from Best Nation to Antow a further 16% of the shares in ZG and more of Best Nation’s cash.
J, having gained control of the board of Best Nation, caused Best Nation to bring proceeding against Antow on the ground that the actions of the former directors of Best Nations were in breach of their fiduciary duties and that Antow had received the shares and the cash with knowledge of those breaches.
Although the evidence given on behalf of the directors was confused, it appeared to be their case tht they were acting in the greater good, in that conferring a greater element of control on the senior management of ZG (who were all beneficially interested in the shares of Antow) would bring happiness and harmony which would contribute to improve the performance of ZG. The court held that, notwithstanding that the directors were acting within the powers conferred upon them by the Articles of Association, they had failed to give any consideration to the best interests of Best Nation. Further, on the application of the test in Charterbridge v Lloyds Bank  2 All ER 1185, no reasonable director, in the circumstances that pertained, could have honestly believed that the actions taken by the directors were in the best interests of the company. The judge also held that the directors had exercised their powers for an improper purpose, i.e. to gain personal control of ZG.
The director’s appeal to the Court of Appeal was dismissed.
View High Court judgment here
View Court of Appeal judgment here
The decision reinforces the well-established principle that the directors of a company must focus on the best interests of that company when exercising their powers. An honest belief that their actions will bring about benefits elsewhere is not, absent an honest belief that those actions will benefit the company in some way, enough.
Interestingly, the Court of Appeal was invited by the Appellant to follow the statement of Lord Sumption, in Eclairs Group v JKX Oil & Gas  UKSC 71, that the substantial purpose test propounded in Howard Smith v Ampoil  AC 821(and followed ever since) (i.e. the substantia purpose test) should be substituted by a “but for test”: i.e. where there are concurrent purposes for the exercise of the power, one of which is improper and the other(s) proper, absent the improper motive would the director(s) still have exercised their powers in the way that they did? If so then the exercise of the power is valid, notwithstanding the presence of the improper purpose. The remainder of the panel expressly did not concur in this statement, preferring to reserve what they described as a major development in the law to a case where the issue arose squarely and was fully argued. The Court of Appeal declined to adopt Lord Sumption’s formulation and affirmed the continued applicability, in the Eastern Caribbean, of the Howard Smith test.