LUSH v Silverwood – how business transactions gone wrong can have financial consequences

The recent announcement that former LUSH CEO Andrew Gerrie and his wife must personally pay a contribution towards their company's legal fees of £300,000 following a blocked share transfer is a stark reminder of the financial consequences of business transactions going wrong.

What happened?

Silverwood Brands ("Silverwood") the investment firm owned by Gerrie and his wife Alison Hawksley, made a conditional acquisition of a 19.8% stake, worth £216.8m. in Lush Cosmetics Ltd and Lush Cosmetic Warriors (together "LUSH") in December 2022. However, the share transfer was blocked by LUSH two months after the intended transfer and LUSH declined to record the transfer of shares.

Silverwood's solicitors maintained an argument that the transfers complied with LUSH's articles of association and there was no merit to LUSH's case. However, in July 2023, LUSH commenced proceedings in the High Court seeking declaratory relief that the transfer of shares was not compliant with LUSH's constitutional documents and that LUSH was entitled to refuse to register those transfers.

On 09 October 2023, after several months of legal communications, Silverwood announced that it had filed a defence to the legal proceedings. However, in a backdown, it also announced its decision to withdraw the request for LUSH to register the share transfer. The effect of this withdrawal was that Silverwood was seeking to unwind the original transaction that was announced on 12 December 2022. It is as part of the transaction being unwound, and documented in a settlement agreement, that Gerrie and Hawksley have agreed to contribute £300,000 towards Silverwood's costs incurred in the transaction.

Our comment

Taking over two years to resolve, and incurring hundreds of thousands of pounds in costs, the outcome of this dispute clearly demonstrates that properly engaging in alternative and early dispute resolution procedures can often be of significant benefit for all involved. Rather than racking up expensive legal fees or risking a costs order against you, there are other options for the early resolution of share transfer disputes. For example, a negotiated settlement agreement or a successful alternative dispute resolution procedure will prevent a matter from proceeding to Court in the first place.

In general, before embarking on a dispute you should always obtain a legal opinion on whether a proposed or alleged transfer does in fact comply with the companies' articles of association. Guidance from corporate litigation lawyers at an early stage will enable you to identify these risks, act expediently throughout the process, and ultimately deliver the most cost-effective outcome.

If you have any questions or would like to discuss the issues in this article, please get in touch.