26 November, 2018
In the recent case of United Co Rusal Plc v Crispian Investments Ltd  EWHC 2415 (Comm), the High Court held that a right of first refusal (ROFR) procedure in a shareholders' agreement had not been validly instigated.
The case above involved three major shareholders of PJSC MMC Norilsk Nickel (NN), namely: -
1. Whiteleave Holdings Limited (Whiteleave), holding approximately 31% of the share capital;
2. United Company Rusal PLC (Rusal), holding approximately 27.82% of the share capital; and
3. Crispian Investments Limited (Crispian), holding approximately 6.37% of the share capital.
The three major shareholders had been party to a shareholders' agreement, under the terms of which, Crispian could not sell any of its shares without utilising a right of first refusal (ROFR) procedure. The ROFR stated that Crispian must first offer its shares to Rusal and Whiteleave at either the price proposed by a bona-fide third party purchaser or an average weighted market price.
In early 2018, Crispian and Whiteleave agreed that a subsidiary of Whiteleave, Bonico Holdings Co. Limited (Bonico) would make an offer to purchase 3.99% of Crispian's shareholding in NN, for around $1.477 billion.
Rusal commenced legal proceedings and argued: -
1. Bonico was not a third party.
2. It was not a bona fide offer and was part of a scheme to inflate the share price to deter Rusal from exercising its ROFR.
3. The ROFR was a right which must be offered to Whiteleave and Rusal and exercised by them both, or not at all.
4. The ROFR notice given was defective because of errors on its face.
The judge reviewed the shareholders' agreement, considered its commercial context and concluded that neither Whiteleave nor Rusal, directly or through an affiliate (the court held that Bonico, as an affiliate of Whiteleave, was not a bona-fide third party purchaser), could purchase shares from Crispian, other than by exercising the ROFR. Furthermore, the ROFR could only be exercised by Whiteleave and Rusal jointly; the ROFR notice which was served had therefore been ineffective.
The case illustrates the importance of considering how shareholders can dispose of their shares and ensuring that those restrictions are carefully drafted.