Q&As

What remedies may be available to a person who has entered into a transaction to buy shares, where it transpires that the purported seller of such shares has neither title to nor the capacity/authority to sell such shares?

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Published on LexisPSL on 03/09/2019

The following Corporate Q&A provides comprehensive and up to date legal information covering:

  • What remedies may be available to a person who has entered into a transaction to buy shares, where it transpires that the purported seller of such shares has neither title to nor the capacity/authority to sell such shares?
  • Potential criminal consequences
  • A share purchase transaction
  • Due diligence
  • Transaction deliverables
  • Civil consequences following execution of an SPA

What remedies may be available to a person who has entered into a transaction to buy shares, where it transpires that the purported seller of such shares has neither title to nor the capacity/authority to sell such shares?

For the purposes of this Q&A, it is assumed that the relevant shares are shares held in the capital of a private limited company incorporated in England and Wales.

Potential criminal consequences

Consideration should be had as to whether, through the deliberate sale of shares to which the seller did not have legal title, a criminal offence has been committed. For example, under section 2 of the Fraud Act 2006 (FrA 2006), an offence is committed if the defendant made a false representation dishonestly knowing that the representation was, or might be, untrue or misleading with the intent to make a gain for themselves or another or to cause loss to another or expose them to risk of loss.

If a person suspects they may be the victim of a fraud, they can report their suspicions to the police or Action Fraud. Should there be sufficient evidence, the Crown Prosecution Service may decide to commence a criminal prosecution.

A person convicted of fraud is liable, by virtue of FrA 2006, s 1, to a term of imprisonment of up to six months and/or a fine if convicted by the Magistrates’ Court.

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