The Court of Appeal has ruled on a legal dispute between the founder of McCarthy & Stone and his old firm over share options that he exercised after he left the company in 2004.
Sir Andrew Morritt CVO allowed John McCarthy’s appeal of a High Court decision refusing him a declaration that he should have been allowed to exercise further options.
However, the Chancellor refused to overturn a decision ordering him to repay £198,000 in tax that was paid by the company on his exercised share options.
The dispute began in 2004 when McCarthy retired following an unsuccessful bid by his sons, Spencer and Clinton McCarthy, for control of the company.
After the company initially denied McCarthy’s entitlement to exercise his options over 138,786 shares, at an exercise price of 267.5p, the boards’ “remuneration committee” allowed him, in January 2005, to exercise his option over 75% of the shares.
The minutes of the committee recorded that, in making that determination, it discussed the alleged effect of his backing of the unsuccessful bid, which included “very considerable disruption… a risk to morale and retention of staff, and a cost to the company in terms of legal and professional fees in the order of £300,000”.
In June 2005, McCarthy, who has always disputed the allegations, started legal proceedings over the remaining 25% of share options.
McCarthy & Stone counterclaimed for the repayment of tax that it had paid on his share options, which were taxable under the PAYE income tax scheme.
In July 2006, Peter Smith J found that the committee’s decision had been a “nullity”, but refused to order that McCarthy had been entitled to exercise 100% of the options and ordered him to repay the company for the tax paid.
On appeal, the Chancellor said that McCarthy should have been allowed to exercise 100% of the options but that he has “no real prospect of success in defending the counter-claim” and that the company should be repaid.
This means that McCarthy can launch a substantial damages claim based upon the position that he would have been in had he been allowed to exercise 100% of the options.
McCarthy v McCarthy & Stone plc Court of Appeal (Sir Andrew Morritt CVO, May and Lloyd LJJ) 4 July 2007.
Derek
