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Company Shares Held in Trust – High Court Identifies Pitfall

Company shares are often held in trust by nominees for the benefit of others, but it is vital to remember that it is only the former who have a legal right to litigate on behalf of the trust. The High Court made that point in the case of a businessman who claimed to have been fraudulently deprived of shares that he beneficially owned.

The businessman claimed that legal title to the shares had been held by two trustees as bare nominees solely for his benefit. He alleged that a man had fraudulently engineered the transfer of the shares from the trustees to a company that he and his wife controlled. In the circumstances, he argued that the register of companies should be rectified and title to the shares restored to the trustees.

His claim under Section 125 of the Companies Act 2006 was, however, struck out by a judge on the basis that the trustees alone had the right to launch the proceedings. In dismissing his appeal against that ruling, the Court noted that the trustees were not parties to the case, nor was there any evidence that the businessman was suing with their authority on behalf of the trust. No special circumstances had been shown that might permit him to bring the proceedings in his personal capacity.