Therefore, the clause that those falling within the definition of «employee shareholder» are subject to their restrictions until they cease to be shareholders and 12 months later must be correctly interpreted. This interpretation was consistent with the transmission rules contained in the sections, as a person who ceased to be a director, employee or agent would likely cease to be a shareholder very soon after. According to the Court of Appeal, a reasonable person would have read these provisions. It did not matter that S had not yet completed the transfer of its shares in the present case. This is a difficult outcome, especially since, in practice, the prospect of a shareholder being bound for a long period, or even indefinitely, is not so unlikely, given that most mandatory transfer provisions are not mandatory from the point of view of other shareholders required to purchase the shares. This judgment seems to give carte blanche to an unscrupulous employer/majority shareholder to relocate the process of extending the life of the Covenants. The shareholders of the staff are attentive! Similar covenants are often added to shareholder agreements that are introduced when shares or stock options are granted to employees in a company. Covenants may impose restrictions as long as a person is a shareholder and for a period thereafter. On February 4, 2020, the Court of Appeal issued an important decision on the enforceability of restrictive covenants in shareholder agreements. The Court held that an agreement contained in the shareholders` agreement was applicable and appropriate, whereas a person would be subject to the agreement 12 months after the transfer of his shares, an event that could (theoretically) occur many years after his exit from the company. The above agreement was formalized by an agreement between Quantum Advisory Ltd (the «Applicant») and Quantum LLP (the «Services Agreement»). The service contract contained typical restrictive agreements in favour of the applicant, which bound Quantum LLP for the duration of the service contract and for a period of twelve months from its expiry or termination. For example, Quantum LLP has been prevented from soliciting or attracting existing Legacy Business customers or providing them with services.

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