Vossberg was a director of the company iWorld Group Europe Holdings plc. This company had a complicated structure due to a number of subsidiaries, some of which had an administrative role in the parent company. The most important subsidiaries were iWorld Group Management Ltd and iModel Music Holdings Ltd.

iWorld Group Management Ltd carried out most of the administrative functions of the parent company, including managing the accounts and employment of staff. iModel Music Holdings Ltd was one of the major businesses carried out by the parent company and had many well-known clients, such as Britney Spears.

Andreas Gerdes founded this company in 2000, four years after his marriage to Bettina Vossberg. In 2002, the couple formally separated, after a period of informal separation. The company suffered as a result of these problems. An internal audit revealed that Gerdes had made improper use of company funds in his own interest. This led to his being removed from his position of authority.

This case is the appeal of an original decision delivered in 2004.

The issues discussed in this case were:

(1) Were improper payments made to the defendant?

There was a written agreement that was practiced before being actually formally written that essentially stipulated that Vossberg was to be reimbursed for services rendered by her to iWorld Group Management Ltd through a third company in which the defendant held a controlling interest.

Admittedly, the authorisation for payment was countersigned by Vossberg herself. However, various witnesses testified that all payments were issued after thorough internal checks by the plaintiff company

The Court felt that, due to such scrupulous checks, there was no doubt that the service for which payment was effected was rendered to the benefit of the plaintiffs and with the consent of both parties. The Court felt that a denial of payment would be tantamount to the unjustified enrichment of the plaintiff company.

(2) Was there a breach of directors’ duties?

The plaintiffs argued that Vossberg had conspired to have her husband removed from his authoritative role in the company and in turn stultifying the very functioning of the company. They alleged that Vossberg, in collaboration with other directors and officers, plotted Gerdes’ removal. Was the decision to remove Gerdes legitimate? The Court held that since the decision was taken during a validly convened board meeting and no evidence of bad faith was produced, the decision had to be deemed sound.

The plaintiffs also alleged that Voss-

berg was more concerned with the interests of the international shareholders than the interests of the company.

The Court rebutted this argument by stating that it was in the company’s interests to assure the institutional shareholders that the company was still viable.

The plaintiffs also alleged that the removal of Gerdes had completely disrupted a deal that could have been very successful and beneficial to the company.

It was also noted that the decision to removed Gerdes was not a personal individual decision of Vossberg but a board decision. This application was dismissed by a decree delivered in October 2006.

The Appeal

The plaintiffs appealed on procedural grounds regarding the production of witnesses as well as on the merits. Regarding the question of unauthorised payments, the Court of Appeal considered that the accounts were subjected to the scrutiny of an audit, and testimonies given by significant individuals such as a financial controller as well as auditors tended towards the claim that the payments made to Vossberg were indeed correct and authorised.

Regarding the removal of Gerdes as a director, the Court of Appeal recognised that the directors had actually orchestrated such a motion. The directors feared that large companies such as international banks that had invested in the company would have withdrawn their investments had they ignored the source of the problem.

Regarding the claim that Vossberg had failed to act in the interests of the company, and focused her attention on the major shareholders, the Court of Appeal quoted Farrar’s Company Law (Betterworths 4th Edit. 1998) which states that: “Traditionally, this obligation to act bona fide in the interests of the company has been defined as an obligation to act in the interests of the shareholders and it is the directors’ subjective opinion as to the interests of the corporators as a general body, balancing the short-term interests of the present members against the long-term interests of future members, which counts.

“Notwithstanding this subjective test, a decision by the directors may be set aside if it is such that no reasonable man could consider it to be bona fide in the interests of the company but the courts rarely interfere and the overall emphasis on a subjective test can be criticised as entrenching management to an unacceptable degree.”

The Court of Appeal maintained that no evidence had been produced to prove that Gerdes’ removal had detrimental effects on the company. It was never proved that it was due to Gerdes’ removal that a contract with Britney Spears was disrupted. The Court finally noted that even if Gerdes’ removal had led to the loss of some contracts, this alone would not render such a removal as not having being done in the best interests of the company. The Court stated that the board of directors must always take into consideration the wider picture of every situation always protecting those with legitimate interests.

It transpired that Gerdes’ chairmanship led to unnecessary expenses and hence his removal was nothing but legitimate. For these reasons, the Court of Appeal upheld the original decision.