Legal area: Corporate & M&A

Task:
You are a corporate lawyer in England and Wales. An England and Wales incorporated private limited company requires assistance as follows: The Client has one majority shareholder (75% holding), and 3 other investors, all party to a shareholders agreement. One investor (10% shareholder, not a director or employee) has breached the terms of the shareholders' agreement by working for a competitor. The founder has notified the breaching shareholder and they agree they should separate. Accordingly, the founder and/or Company want to quickly remove them and buy back their shares. The Company has only one class of shares and all are fully paid up. SHA contains no express compulsory transfer provision, bad leaver clause, or price mechanism to fall back on an utilise in this breach scenario. They previously bought their shares for 100,000 GBP, but a latest valuation has their shares valued at 250,000. The founder has other business interests so wants to manage this carefully and lawfully.
The Company has 100,00 GBP in its bank account, but does not have distributable reserves, only retained losses of 200,000. It has a share premium account with funds of 120,000 in it. The Founder has confirmed that the commercial pipeline is good, with some pending customer negotiations looking to close in the coming months. Analyse and report the options for this business and what might act as a blocker for each option. Present the founder of the Company with a legal memo, outlining the basis for which they should agree a reasonable and defendable price for the share buyback and outline a structured list of options for them to remove this shareholder. Please provide sources and verifiable public resources from which you have based your response. Please also consider whether the founder can also act as the purchasing conduit or if the Company can support this shareholders' acquisition in a lawful way.

Reference answer:
**Background**
We have been asked to set out some advice to the founder of a company incorporated in England and Wales (the "**Company**"). We understand that the Company has one majority shareholder (the "**Founder**") holding 75% fully paid up shares (same class as all shareholders) and three minority investors, all of which are party to a shareholders' agreement (the "**SHA**"). The problem requiring assistance is that one minority investor (10% shareholding) has breached the SHA by working for a competitor(the "**Breaching Shareholde**r"). The SHA contains no express provisions, but it still must be reviewed in full (alongside the articles of association) before the Company takes any steps.

**Executive Summary**
The analysis below sets out the position for the Company, but in short, a buyback of the Breaching Shareholder's shares by the Company is not possible at this stage. The parties should first negotiate a settlement based on a suitable valuation metric and taking into consideration the nature of the breach and then consider whether the Founder can acquire these shares directly through self-financing.

**Analysis**
There are two key pillars here: price(because this is a key commercial factor which impacts the legals), and then process (because we need to outline the mechanics which may or may not be available).

**(A) Price to pay for the Breaching Shareholders' Shares**
With the SHA being silent on price, we have to consider what price to actually agree. There is also no single correct answer on value, because each valuation methodology (i.e. such as multiple of profits, market comparables etc.) can each produce a materially different figure for the same company, and none is inherently more correct than another. The parties likely have to each take independent valuation advice, and the Board should be prepared for a range rather than a single number.

In any event, it goes without saying that the Company's financial position is crucial. It holds £100,000 cash at bank and a share premium account of just over £100,000, but carries accumulated losses of £200,000 and therefore has no distributable reserves. The Breaching Shareholder originally acquired their shares for £100,000 and the current independent valuation values them now at £250,000. These figures have a large impact on the analysis and options below because the financial health of the Company creates some material blockers.

From a legal perspective, the Company cannot necessarily force a price because the Breaching Shareholder breached the SHA. A departing shareholder retains their membership rights and the protections that attach to them until their shares are validly transferred or cancelled, irrespective of the breach. Under s.994 CA 2006, any shareholder may petition the court on grounds of unfairly prejudicial conduct, and the courts have consistently held that a forced transfer at a price that does not reflect fair market value can support such a petition. In O'Neill v Phillips [1999] UKHL 24, Lord Hoffmann confirmed that (i) the appropriate measure in a buyout context is ordinarily the fair value of the shares on a pro rata basis, without minority discount and (ii) that exclusion of a shareholder from management without a reasonable offer to purchase their shares will likely constitute unfair prejudice. If fair value cannot be agreed between the parties, it should be determined by a competent independent expert. Therefore, a transfer at the original acquisition cost of £100,000 (against a current valuation of £250,000), without any contractual basis for that differential, creates a risk for the Company.

A negotiated discount below fair market value can still be possible, but either:
1. it requires justification linked to a quantifiable loss caused by the breach (rather than to the fact of breach itself). The relevant constraint is the unfair prejudice jurisdiction under s.994 CA 2006: a below-market price imposed without proper justification exposes the Company to a petition by the Breaching Shareholder. Any discount should therefore be documented by reference to specific, demonstrable loss.
2. requires a negotiated settlement at that figure, agreed by the Breaching Shareholder. Where a shareholder voluntarily agrees a price and transfers their shares on that basis, they cannot subsequently petition for unfair prejudice by reference to that price because the transfer was consensual, and the agreed consideration reflects the parties' own commercial resolution of the matter (O'Neill v Phillips [1999] UKHL 24 and Re Sunrise Radio Ltd [2009] EWHC 2893 (Ch)). If the competitive activity has caused quantifiable loss to the company such as damage to a commercial relationship, diversion of business opportunities, or costs incurred in consequence of the breach, those claims have real value as negotiating leverage. A settlement at £100,000 (being the price originally paid) in exchange for a full release of all such claims, combined with a clean exit and the avoidance of protracted litigation, may be an outcome the Breaching Shareholder is willing to accept, particularly if the Company's damages claim is backed up.
However, with regards to a negotiated settlement, the parties will need to negotiate a settlement agreement, recording that the price was freely negotiated, that the Breaching Shareholder received or had the opportunity to take independent legal advice, and that the agreed consideration reflects a full and final resolution of all claims between the parties. That should hedge against any claims of unfairness down the line.

Whilst a fair market value (£250,000 on the current valuation) remains the appropriate and most defensible benchmark where no settlement at a lower figure can be achieved, there is a basis to negotiate price. Whatever price is ultimately agreed, the Board, having mind to their directorial duties, should pass a formal resolution recording the valuation evidence relied upon and the commercial rationale for the agreed figure.

Unfortunately, there is no additional leverage which the Company has here because the Breaching Shareholder is not an employee/director.

**(B) Process**
**Figuring out the price to pay is one step, the next is to then consider the basis through which this can legally be carried out. Please note - the Company should first analyse its articles of association and SHA to determine any further or bespoke restrictions placed upon it. These could relate to pre-emption rights or specific restrictions on share buybacks. **
1. A company incorporated in England and Wales may purchase its own shares pursuant to sections 690–708 of the Companies Act 2006 (the "**CA 2006**"). The Company's shares are not traded on a recognised investment exchange, therefore, any buyback from the Breaching Shareholder would constitute an off-market purchase under s.693 CA 2006, and the following conditions must be satisfied before that purchase can lawfully proceed.
1. The Company's articles of association must not prohibit a share buyback.
2. The terms of the proposed purchase contract must be authorised by ordinary resolution of the shareholders (being approval if 50% of the Shareholders so entitled to vote on it) before the contract is entered into (s.694(1) CA 2006). Being that this is the actual agreement between the Breaching Shareholder and the Company, a copy of the proposed contract must be made available for inspection at the Company's registered office and at the meeting itself (s.696 CA 2006). One procedural feature of the off-market purchase regime is worth noting at the outset is that the Breaching Shareholder is prohibited from voting on the resolution to approve the terms of their buyback (s.694(4) CA 2006).
3. The purchase price must be paid out of the company's distributable profits, or out of the proceeds of a fresh issue of shares made for the specific purpose of financing the purchase (s.692(2) CA 2006).
4. the Shares acquired by the Company must either be cancelled immediately upon completion (s.706 CA 2006) or held as treasury shares in accordance with s.724–732 CA 2006. In most cases for a private company in these circumstances, cancellation is the appropriate course because future investors and employees typically prefer to receive newly issued shares unencumbered by any legacy matters or nuance.
5. Finally, a return of the purchase must be filed at Companies House within 28 days of completion. The relevant Companies House forms are SH03 (return of purchase of own shares) and, where shares are cancelled, SH06 (notice of cancellation). The buyback contract must also be retained and made available for inspection at the registered office for 10 years from completion under s.702 CA 2006.

**Options to fund the buyback (Company):**
1. **Out of Distributable Profits**.
1. Section 692(2) CA 2006 is the provision that impacts whether or not the Company can execute the buyback at this stage. The purchase price in a share buyback must be paid from the company's distributable profits, or from the proceeds of a fresh share issue made specifically to fund the buyback. Distributable profits are defined by s.830 CA 2006 as a company's accumulated realised profits less its accumulated realised losses. We note that the Company has accumulated losses of £200,000 and therefore has no distributable profits/reserves
2. A key trap here in these circumstances, and one to emphasise, is that cash at bank and distributable profits are not the same thing. A company with cash on its balance sheet but accumulated losses has no distributable profits and cannot fund a buyback from that cash, regardless of how much it holds. Therefore, if the Company proceeded using its £100,000 in cash, this would constitute an unlawful return of capital, would render the buyback void, and would expose each director to personal liability.

**2.Using the share premium account **(the** "SPA"). **
1. The share premium account arises under s.610 CA 2006 when shares are issued at a price above their nominal value and accordingly the excess is credited to the SPA rather than to the profit and loss account. It is a capital account and its application is restricted by statute. Funding a share buyback is not a permitted application of the SPA. Therefore, applying it for that purpose would constitute an unlawful reduction of capital and would therefore be void. The SPA cannot, in other words, simply be redirected to pay for the Breaching Shareholder's shares.
2. There is, however, an indirect route. The SPA can be eliminated through a formal capital reduction under Part 17 CA 2006 (ss.641–653). Once reduced to nil through that process, the accounting effect (confirmed by ICAEW Technical Release TECH 02/17BL) is to create a realised reserve of equivalent amount, which is then distributable and can be applied to fund a share buyback.
3. This capital reduction process requires, broadly:
1. the directors to sign a statutory solvency statement under s.642 CA 2006 confirming the Company can pay its debts for the following 12 months; and
2. the shareholders to pass a special resolution approving the reduction and make the necessary Companies House filings.
4. Unfortunately, this capital reduction process creates only £100,000 of distributable reserves which insufficient to fund a £250,000 buyback alone. If £100,000 is agreed, this is still not workable because the losses are £200,000 so there would still be retained losses of £100,000 and thus we are still not able to use this route.

Please note that each signatory to the solvency statement is personally criminally liable if they sign without reasonable grounds (s.643(4) CA 2006), and accounting advice must be taken beforehand. This is an important point for this capital reduction process because it exposes the directors to significant liability if they act incorrectly.

_Note: UK company law does provide for a buyback under the "de minimis procedure", which permits share buyback purchases of up to the lower of £15,000 or 5% of share capital without shareholder approval. However, given the values involved here, this can be ruled out immediately._

**3.Fresh Issue of Shares**

Section 692(2)(b) CA 2006 permits a company to fund a buyback from the proceeds of a fresh share issue made specifically for that purpose. In principle this would get around the two issues above. However, it is highly unlikely that an investor can be found quickly and it is also unlikely that this current dispute won't give them pause. Accordingly, this option is included for completeness and is not really a viable route.

**Option to fund the Buyback (Founder or another Shareholder):**
**4.Acquisition by the Founder or another Shareholder**
This option may be attractive simply because it involves the Founder (or another Shareholder) purchasing the shares directly, therefore avoiding the issues outlined above with a Company buyback. However, it may be challenging because (i) this would be a personal acquisition depending on personal finances (which may also have personal taxation consequences); (ii) if the Founder is making the purchase, query how the minority shareholders will think about this boosting the Founder's shareholding and (iii) on top of that, this option itself does have some nuances, as outlined below.

Unlike for public companies, private limited companies are not subject to the financial assistance prohibition under ss.677–683 CA 2006. That prohibition was relaxed for private limited companies. Unfortunately, this does not eliminate some other problems which arise were the Company to try and assist the Founder (or another Shareholder) with buying the Breaching Shareholder's shares. Firstly, under s.829 CA 2006, any distribution by a company to its members must be made out of distributable profits, which we have established are already not present. If a loan to the Founder were made on terms that are not genuinely commercial, there is a real risk that a court would characterise it not as a loan but as a distribution. If so, it would be an unlawful distribution given the that the Company has no distributable profits. The consequences are the same consequences as an unlawful buyback (being rendered void, and exposing each director to personal liability for the amount paid out).
Secondly, under s.172 CA 2006, directors must act in the way they consider, in good faith, would be most likely to promote the success of the Company for the benefit of its members as a whole. A loan to the Founder (or other Shareholder) at a time when the Company holds only £100,000 in cash and carries accumulated losses of £200,000 obviously requires careful justification, which is beyond the scope of this memo as it is likely a very high hurdle to clear. The directors would need to satisfy themselves that making the loan is genuinely in the Company's interests, that it would not leave the Company unable to meet its own liabilities as they fall due, and that shareholder interests have been properly considered. A loan that cannot be justified on those grounds exposes the directors to a claim for breach of duty.
For the avoidance of doubt, the Company taking out a loan in order to then fund a further Founder (or Shareholder) loan is also unrealistic (due to the lender's own diligence and compliance checks when reviewing the reasoning for the loan) and nevertheless problematic. Incurring a liability on the Company's balance sheet in order to fund the Founder's (or other Shareholder's) personal acquisition would be very difficult to justify under s.172 CA 2006 at a time when the Company already carries significant accumulated losses, and would expose the directors to a claim for breach of duty.

One practical point to note is that given this would be a transfer of shares, a duly signed stock transfer form would required and stamp duty of 0.5% of the purchase price must be paid to HMRC by the actual purchaser. Details can be found here: <https://www.gov.uk/guidance/pay-stamp-duty>

**Conclusion**
The above clearly shows that a price needs to be agreed, and even that is complicated and not without risk. It is noted that the Company wanted to move quickly here, but unfortunately the Company cannot fund a buyback today because it has no distributable reserves, and the capital reduction route does not resolve the position either given the accumulated losses of £200,000. The Company's road to funding a buyback is therefore either:
(1) to wait until its accounting position has improved sufficiently to generate distributable reserves that exceed the accumulated losses and cover the purchase price in full (or if the SPA remains available at that point to use a capital reduction of the SPA to top up whatever distributable reserves exist at the time, provided the combined figure is sufficient to meet the agreed price). In either case, accounting advice should be taken before proceeding to confirm the distributable position at the relevant time. They will also still need to follow the statutory procedure at that time.
(2) The Founder should consider whether they have the personal resources (now or via borrowing) to acquire the shares directly in their personal capacity.
(3) Equally, other shareholders could be asked if they wish to acquire the shares directly from the Breaching Shareholder, but this would be subject to their own financial circumstances.

One commercial consideration when the buyback is made (howsoever it is made), is the parties could consider structuring the buyback in tranches. This could commence the process sooner, whilst the Company builds up sufficient distributable reserves. Naturally, this still relies on some distributable reserves being available at the first payment date, so the timing is still uncertain. Furthermore, this would not produce a clean break until the payment is made in full, so some of the same risks (having the Breaching Shareholder within the business and treating them fairly) still remain.

Finally, regardless of the above, the Company should take steps to protect its position in the event that the current agreement in principle breaks down. That means gathering evidence of the Breaching Shareholder's competitive activity which might support both a damages claim and any future litigation (if it gets to that). The Company should also consider whether it is in a position to restrict the Breaching Shareholder's ongoing activities in the interim. The Breaching Shareholder may cause further harm if not managed properly. For example, the Company could minimise this risk by enforcing any continuing confidentiality obligations under the SHA, requiring the return of confidential information or company property, or simply notifying the Breaching Shareholder in writing of the obligations that continue to bind them under the SHA. Any such steps must be taken carefully because any restrictions that go beyond what the SHA expressly permits, or that could be characterised as oppressive conduct toward a minority shareholder, also pose potential risk to the Company.

**References.**

Companies Act 2006, s.610 — share premium account: <https://www.legislation.gov.uk/ukpga/2006/46/section/610>.
Companies Act 2006, Part 18 (ss.658–737) — share buybacks: <https://www.legislation.gov.uk/ukpga/2006/46/part/18>.
Companies Act 2006, s.641–644 — capital reduction: <https://www.legislation.gov.uk/ukpga/2006/46/section/641>.
Companies Act 2006, s.677–683 — financial assistance: <https://www.legislation.gov.uk/ukpga/2006/46/section/677>.
Companies Act 2006, s.692(2) — funding of share buybacks: <https://www.legislation.gov.uk/ukpga/2006/46/section/692>.
Companies Act 2006, s.694 — off-market purchases: <https://www.legislation.gov.uk/ukpga/2006/46/section/694>.
Companies Act 2006, s.830 — distributable profits: <https://www.legislation.gov.uk/ukpga/2006/46/section/830>.
Companies Act 2006, s.994 — unfair prejudice: <https://www.legislation.gov.uk/ukpga/2006/46/section/994>.
ICAEW Technical Release TECH 02/17BL — Distributable Profits: <https://www.icaew.com/technical/financial-reporting/uk-gaap/distributable-profits>.
O'Neill v Phillips [1999] UKHL 24: <https://www.bailii.org/uk/cases/UKHL/1999/24.html>.
Cavendish Square Holding BV v Makdessi [2015] UKSC 67: <https://www.bailii.org/uk/cases/UKSC/2015/67.html>.
Re Sunrise Radio Ltd [2009] EWHC 2893 (Ch): <https://www.bailii.org/ew/cases/EWHC/Ch/2009/2893.html>.
https://www.gov.uk/guidance/pay-stamp-duty

Author's notes on the task:
Share buybacks are nuanced because there is a legal process in the UK, but sometimes the commercial realities are rather nuanced. Often corporate lawyers deal with shareholder breaches and company disputes. However this hinges on the lawyers and the finance professional working together to understand the financial and legal mechanics of a buyback actually being possible. The key is to try and offer up alternative solutions and to understand the flexibility of this task based on the financial situation of the company.

Why this scenario is realistic: This is a common scenario - breaching SH, company wanting to act but the financials creating a barrier.

What makes it difficult: I think lawyers and I suspect perhaps AI may get a bit lost with the right path forward. The numbers may need changing - the point is that it might not be possible to do the share buyback, so perhaps it falls on the Founder to somehow do this (which again is not so straightforward). The AI might force a solution, but the best solution might be to wait

Reference materials: https://www.legislation.gov.uk/ukpga/2006/46/contents

Scoring rubric:
rubric_category: Structure & Style Rubric
criterion: Does the answer use defined terms consistently throughout?
justification: Legal outputs should match legal documentation style and consistent use of defined terms is an important marker of professionalism and legal register
rubric_category: Structure & Style Rubric
criterion: Is the answer written in a professional tone and manner consistent with that of a legal memo written by a legal professional?
justification: The answer should reflect that this was a requirement for a legal memo which should be written professionally and not colloquially.
rubric_category: Structure & Style Rubric
criterion: Does the answer provide multiple options and a conclusion?
justification: The goal is to not provide one answer, nor is it to provide some options without any conclusion
rubric_category: Substance Rubric - Explicit requirements
criterion: Does the answer correctly identify that the Company's articles of association and SHA must be reviewed for additional restrictions?
justification: We have not seen these documents, but the response has to recognise that these documents may change the fact pattern substantively if they contain certain restrictions (i.e. a de minimis is a good example).
rubric_category: Substance Rubric - Implicit requirements
criterion: Does the answer state that a settlement agreement should be drafted recording that the price was freely negotiated and that the Breaching Shareholder had the opportunity to take independent legal advice?
justification: This was not explicitly asked, but is implied. Agreeing the price is one thing, the Company should now seek to protect and document this agreement suitably to avoid risk of challenge down the line
rubric_category: Substance Rubric - Implicit requirements
criterion: Does the answer distinguish between cash at bank and distributable profit?
justification: Cash at the bank and the distributable reserves are not the same thing. This is an accounting and financial point reflecting how the law does not operate in a vacuum.
rubric_category: Substance Rubric - Implicit requirements
criterion: Does the answer identify the unfair prejudice risk under s.994 CA 2006 of engineering a transfer at below fair market value without contractual justifications
justification: Failing to identify this means failing to identify a key potential risk
rubric_category: Substance Rubric - Implicit requirements
criterion: Does the answer explain the reason why despite the financial assistance prohibition no longer applying, a loan to the Founder (or Shareholder) to fund the purchase will still be unlawful?
justification: Financial assistance no longer applying does not create a workaround here because it still comes back to the fact that the Company does not have distributable reserves, so it cannot pay a dividend and it would be extremely difficult to justify, document and stand behind making a loan in its financial circumstances.
rubric_category: Substance Rubric - Implicit requirements
criterion: Does the answer correctly identify that the Breaching Shareholder is prohibited from voting on the resolution to approve the terms of their own buyback under s.694(4) CA 2006?
justification: Th answer should provide helpful procedural points and this is a useful practical note if they are worried about passing a resolution relating to this shareholder
rubric_category: Substance Rubric - Reasoning quality
criterion: Does the answer cover the link between Price and Process?
justification: Being able to do the buyback is one thing, but this is still a comemrcial arrangement and so the price factor can affect how the process actually plays out
rubric_category: Substance Rubric - Reasoning quality
criterion: Does the answer identify the negotiated settlement at £100,000 as a possible route?
justification: This is a practically important route that a strong answer should identify. It also has a direct funding advantage given the Company's cash position. A response that treats £250,000 as the only defensible price misses a potential commercial solution.
rubric_category: Substance Rubric - Reasoning quality
criterion: Does the answer recommend that the Company gather and preserve evidence of the Breaching Shareholder's competitive activity to support a potential damages claim?
justification: Ultimately, this brings us back to the point that this is a contentious matter with additional considerations to bear in mind and represents going the extra mile outside of the brief.
rubric_category: Substance Rubric - Reasoning quality
criterion: Does the answer state that even after a capital reduction of the SPA, the Company will not be able to fund a buyback since the accumulated losses of £200,000 would absorb the £100,000 reserve created
justification: This again highlights the commercial and practical nature of this scenario - using the capital reduction of the SPA provides extra funds, but the losses amount must still not be greater than the buyback purchase price, otherwise you are still stuck at the first hurdle of not having distributable reserves/profits.
rubric_category: Substance Rubric - Reasoning quality
criterion: Does the answer explain why the fresh issue of shares route is theoretically available but practically unviable?
justification: The answer may provide options which, whilst technically possible, are just unrealistic and this is a key part of advice. Outlining a potential solution on paper is very different to outlining a viable path forward.
rubric_category: Substance Rubric - Reasoning quality
criterion: Does the response correctly identify that the other non-breaching minority investors could also be approached as potential personal purchasers of the Breaching Shareholder's shares?
justification: It is crucial to set out who can actually purchase these shares and the Founder and Company are not the only ones.
rubric_category: Substance Rubric - Reasoning quality
criterion: Does the answer state that the Company taking out a loan would still not be workable?
justification: Additional lending creates a liability (financial and legal on the part of the directors). It is also highly unlikely a lender will lend to a business without profits and when the purpose is to onwardly fund a breaching shareholder's exit
rubric_category: Substance Rubric - Legal correctness
criterion: Does the answer identify that the Breaching Shareholder cannot be compelled to transfer their shares in the absence of an express contractual mechanism?
justification: This is crucial because the Company has to understand that it must work towards a formal and binding agreement to resolve this matter.
rubric_category: Substance Rubric - Legal correctness
criterion: Does the answer state that the Company has no distributable reserves and that this prevents a company-funded share buyback under s.692(2) CA 2006?
justification: If this is not identified early on, the answer can include a lot of wasteful and irrelevant content
rubric_category: Substance Rubric - Legal correctness
criterion: Does the answer state that the solvency statement can create criminal liability for signing without reasonable grounds under s.643(4) CA 2006?
justification: If the capital reduction of SPA is now or in future a route, the directors who sign this solvency statement have to understand the seriousness of this commitment.
rubric_category: Substance Rubric - Legal correctness
criterion: Does the answer correctly identify that shares purchased by the Company must be cancelled or held as treasury shares?
justification: Important to note because it highlights process point and legal requirement.
rubric_category: Sources and References Rubric
criterion: Does the answer cite Companies Act 2006, ss.641–644 as the statutory basis for the Capital Reduction route?
justification: This is the operative part of the CA 2006
rubric_category: Sources and References Rubric
criterion: Does the answer cite Cavendish Square Holding BV v Makdessi [2015] UKSC 67 to infer that any discount below fair market value must be based on a legitimate commercial interest and demonstrable loss?
justification: Authority for the position stated.
rubric_category: Sources and References Rubric
criterion: Does the answer cite CA 2006, s.692(2) as the statutory basis for the distributable reserves requirement?
justification: This is the operative part of the CA 2006
rubric_category: Sources and References Rubric
criterion: Does the answers cite both O'Neill v Phillips [1999] UKHL 24 and Re Sunrise Radio Ltd [2009] EWHC 2893 (Ch) together in support of the negotiated settlement route?
justification: These are authorities for the position stated.
rubric_category: Negative Rubric
criterion: Does the answer state that capital reduction via share premium account will work straightaway?
justification: This is obviously not possible based on these facts
rubric_category: Negative Rubric
criterion: Does the answer recommend or advise a course of action that would constitute oppressive conduct toward the Breaching Shareholder as a minority member?
justification: This creates a potential pitfall for the Company because if they mismanage this situation they risk making an already contentious situation worse
rubric_category: Negative Rubric
criterion: Does the answer fail to distinguish between a company share buyback under Part 18 CA 2006 and a personal acquisition by the Founder or other shareholders?
justification: Our client is the Company but it was stated that the Founder might be able to buy the shares. Nevertheless, the treatment is different for both and it must be separated out accordingly to avoid conflating the two and creating an unclear plan of action for either.
rubric_category: Negative Rubric
criterion: Does the answer fail to distinguish cash in the bank from distributable profits and conflate the two?
justification: This is a key distinction
rubric_category: Negative Rubric
criterion: Does the answer fail to identify that fair market value is the appropriate default pricing benchmark in the absence of an express contractual mechanism?
justification: It might be tempting to just say the same price of £100,000 is suitable, but this is problematic and risks creating a problem straight away
rubric_category: Negative Rubric
criterion: Does the answer state that the Company can proceed with a buyback out of distributable reserves at this point in time?
justification: This is obviously not possible based on these facts

Peer review 1:
Overall quality: 4 - Above Standards
I would suggesting including options that are unattractive (for completeness) and also those that won't work (to show they have been considered).
More descriptive subheadings would assist with rapid absorption of the information
Representativeness: 5 - Core Activity
Difficulty: 5 - Very Hard
Requires consideration of:
- unfair prejudice - vague and nebulous claim to bring
- buybacks - fiddly, multiple options, funding
- purchase by founder:
- impact on other shareholders
- funding
- distributions
- directors duties
Task specification: Well-Specified

Peer review 2:
Overall quality: 4 - Above Standards
The memo is drafted professionally and the advice provided were clear, concise, and most importantlly commercially smart and viable. This is usually very appreciated by clients who are looking for legal solutions that will also make the most sense to them commercially after evaluating the circumstances and challenges at hand.
Representativeness: 4 - Typical
Difficulty: 3 - Moderate
The complexity of this case is less in the law, but slightly more on the accounting side of the shares arrangement and calculation. The legal provisions and analysis are relatively straightforward.
Task specification: Well-Specified