New Order sparks intrigue for music industry
gossip columns and company shareholders and
directors (/Journa1/2016/March/New-Order-
sparks-intrigue-for-music-industry-gossip-
columns-and-company-lawyers.aspx)
23 Mar 2016
By Nicola Mellott
(Nournal/2016/March/New-Order-sparks-intrique-for-music-industrv-
gossip-columns-and-company-lawvers.aspx)
The High Court has given Peter Hook permission to
continue his derivative claim in his dispute with Bernard
Sumner and his former New Order co-band members. As
well as providing material for the music industry's gossip
columns, the judgment makes interesting reading for ![[clown]](/emoticons/icon_smile_clown.gif){kind=icon}
shareholders and directors in the creative industries.
It illustrates how and why a minority shareholder/director
could bring a derivative claim, rather than an unfair
prejudice petition, for an alleged appropriation of the
company's music assets by the other
director/shareholders.
Background
The New Order group was formed in 1980 and played and toured extremely successfully on and off until 2006. The group had four members, including Peter Hook and Bernard Sumner. They formed a company in 1992 with all of them being (and they still are) the only directors and equal shareholders. In 2007 the group decided not to work or perform together any more. The company still owns various trademarks using the name "New Order", and the goodwill in that name, including the right to perform or to permit performance and recording under the New Order name in the future. It also owns the rights to a considerable back catalogue of previous New Order material. Transactions on 2 September 2011, without Peter Hook When they knew that Peter Hook was abroad and so could not participate, the three other directors and shareholders (the defendants) met to amend the company's articles to enable written resolutions of directors to be passed by a majority of them (and not all of them as previously). Then by a written resolution the three other directors resolved to ask the shareholders to approve (which they did by written shareholders' resolution) a trademark licence by which the rights to use the New Order name and trademarks would be licensed to a separate company, to be
renamed New Order Ltd, which was owned and controlled by just the three of them. The trademark licence was dated that day.
Neither of the shareholders' written resolution was circulated to Mr Hook. The judge remarked that that was a criminal offence under the Companies Act 2006, although he accepted that each resolution was validly passed.
New New Order
The reformed New Order group (without Mr Hook) has been very successful. It has been very well received critically, and is very popular with audiences. The reported income of New Order Ltd since 2011 from performing and recording has been of the order of £7.8 million.
Peter Hook's derivative claim
Peter Hook claims that the terms of the trademark licence are so weighted in favour of the licencee, the defendants' own company, that they amount to an expropriation of the property of the company by the majority shareholders for their own benefit in breach of their duties as directors of the company such as entitles the company to maintain a claim against them. The derivative claim procedure enables Peter Hook to bring the claim on the company's behalf.
Peter Hook's derivative claim hurdles
First Peter Hook had to show the court that he had a prima facie case. The judge held that there were at least reasonable prospects that he would establish at trial that the central term of the trademark licence, the royalty rate, was less than might have been expected to be achieved in an arm's length negotiation conducted on the part of the company by directors acting in the interests of the company without a conflict of interest of their own. That was the first hurdle overcome.
Next the judge went through each of the relevant factors that the Companies Act 2006 requires him to consider before deciding whether to give permission to continue the claim. Peter Hook passed the test for all of them.
One of those statutory factors is that the court must consider whether the act complained of has been authorised by the shareholders. In this case it had, but because the shareholders were the alleged wrongdoers the judge rejected this factor. That is an interesting point, which is not apparent from the statutory provisions.
Why didn't Mr Hook petition the court for unfair prejudice?
It is common in a shareholders' dispute for the disgruntled shareholder to petition the court on the ground that there has been unfair prejudice in the conduct of the company's affairs. Mr Hook decided not to take that route because the usual remedy that the court gives for unfair prejudice is to order the defendants to buy the petitioner's shares for value. Mr Hook does not wish to lose his current interest in the future value and exploitation of the back catalogue of New Order material to which he contributed. So he wants to remain a shareholder.
The judge encouraged the parties to agree to settle this matter between themselves, rather than incurring the substantial additional costs of further litigation. If this action does go to trial, the music industry gossipers and director/shareholders will be intrigued to hear the result. We will share that with you if it happens.
The case is Peter Hook v Bernard Sumner and others 120151 EWHC 3820 (CH)javascript:insertsmiley(' ','/Images/Emoticons/icon_smile_clown.gif')
