In dismissing Darty Holdings SAS’ (“Darty”) appeal in a recent decision, Miles J. has confirmed that an English court will look at the actual relationship between the parties involved, rather than the wider context, when considering whether those parties are connected. This will be the case even where the wider context consists of a transaction that will, immediately following the relevant transaction, sever that relationship.
This decision will prove an unwelcome development for lenders with security over shares. The mortgagee will be a connected person if it is able to vote with shares comprising a third or more of the company’s voting shares and while the lender will usually exclude that power until enforcement of the mortgage, they will then be “connected” under the Insolvency Act 1986 (the “Act”).