Senior Executive Leaving? Informal, Oral Agreements are a Recipe for Dispute


The circumstances in which senior executives depart from companies in which they have played a lynchpin role can be highly contentious. A High Court case provided a prime example of a lack of legal formality feeding the flames of dispute.

The case concerned the resignation of a chief executive officer (CEO) from a company he founded. The company contended that, prior to his departure, an oral agreement had been struck whereby he would sell a number of his shares back to the company for £360,000. It was further alleged that he had agreed to gift certain other shares to his co-founder and to certain of the company’s employees.

The CEO denied that any agreement for the sale and gift of his shares had been reached. Even if there were such an agreement, he asserted that it was subject to contract and not binding. On that basis, he resisted parting with his shares and sought to conduct himself as a continuing member of the company. He convened meetings and sought to appoint himself as a director and to change the company’s registered office.

The company’s response was to launch proceedings against him, seeking an order of specific performance that would hold him to the terms of the alleged agreement. It obtained an interim injunction which, pending a trial of the action, forbade him from exercising or purporting to exercise rights as a member, director, officer, representative, employee or agent of the company.

At a preliminary hearing, the company applied to strike out elements of the CEO’s defence by which he made criticisms of the company’s conduct following his departure and asserted, amongst other things, that it would be unfair to require him to part with his shares at an undervalue. In alternatively seeking summary judgment on the relevant parts of his defence, the company contended that they had no bearing on the issues in the case and afforded him no real prospect of defeating the claim.

Rejecting the application, however, the Court was not satisfied that it would be right to shut out the CEO from relying on the entirety of his pleaded defence. It was important for the trial judge to hear all relevant evidence and it was possible that questions of fairness and conduct post-dating the alleged agreement might influence his decision whether or not to grant specific performance.

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