TAI owned a number of shares in Nam which were charged to the bank. The charge was subsequently called upon against TAI. When TAI was wound up, and in an attempt to destroy the bank’s security, Nam sought to exercise a power contained in its own articles to redeem the shares owned by TAI (still charged to the bank) and to then offset the redemption price against a judgment debt owed by TAI to Nam.
The Privy Council confirmed that there could be no redemption for the purposes of a set-off against an insolvent company. Such redemption would also be ineffective even as against a solvent company if prior notice of a bank’s charge had been received and where there was no equity left over against which the set-off could operate. Here, the purported redemption was a nullity. The shares should be re-registered in the bank’s name, so that it could exercise its right to take possession and exercise the power of sale of the shares at its own discretion.
It is pleasing to note that in giving judgment, the Privy Council expressed the need to maintain the confidence which bankers should have in the willingness of the courts to uphold their security rights.
Hague v (1) Nam Tai Electronics Inc, (2) Tele Art Inc (in liquidation), (3) Bank of China (Hong Kong) Ltd