Knowledge Hub | Cases

14 May 2019

B P Collins wins claim in High Court over shareholder dispute

B P Collins acted for the successful Claimant / Petitioner in her claim for a series of declarations as to her shareholdings in the company, and her petition under s.994 of the Companies Act, complaining of unfairly prejudicial conduct of the affairs of the company.

The company was an accountancy practice run by the Claimant and the First Defendant who, from 2009 to 2015, were in a personal relationship. Pursuant to a shareholders agreement in 2011, the company had five shareholders, including the Claimant, and the First and Second Defendants. A meeting took place in 2012, in which the Second Defendant’s 16.5% shareholding in the company was bought back, and the Claimant was allotted fresh shares of 16.5%. 

In July 2013, the Claimant repaid a large loan owed by the company, which was treated as being payment for further shares. From this date, the Claimant and the First Defendant operated on the basis that the shares were beneficially held equally. Legally, the Claimant and the First Defendant held shares 49% and 51% respectively, to satisfy the requirements of the Institute of Chartered Accountants of England and Wales. The Claimant had transferred a small number of her shares to the First Defendant, so that he was shown as being the legal owner of 51% of the company.

When the relationship between the Claimant and the First Defendant broke down in 2015, the First Defendant purported to remove the Claimant as a director, asserted she held only an 11% shareholding, diverted the company’s business to himself, and removed money from the business.

In December 2016, the Claimant brought proceedings to establish the extent of her shareholding and breaches of the shareholders’ agreement. In January 2017, the Claimant successfully sought injunctive relief, to preserve the assets of the company, pending trial. In response to this, the First Defendant resigned as a director, and appointed two of his friends as directors in July and August 2017. They acted on the instructions of the First Defendant, who continued as a de facto / shadow director, took excessive remuneration, and presided over the destruction of the company.

In November 2017, the Claimant brought an unfair prejudice petition, claiming that the affairs of the company have been conducted in a way that was unfairly prejudicial to her. The Claimant sought to have her shares purchased, on the basis of a 50% shareholding, at their value on a date shortly before the unfairly prejudicial conduct began. By February 2018, the company had gone into liquidation.

The High Court trial took place in in November 2018, over six days, with judgement reserved. Judgement was formally handed down in February 2019. Both parties relied on expert evidence to value the company. The Claimant’s expert valued the company at £450,000, whereas the Defendants’ expert valued the company at £265,000.

The Claimant was successful in both her claim and petition. 

Despite the possibility of the buy-back being void under the Companies Act 2006, the Defendants were estopped from denying that the Second Defendant’s shares were bought back. The parties intended that the First Defendant would hold the legal title in the transferred shares to satisfy the ICAEW requirements, but for all other purposes, the Claimant was to be treated as beneficially entitled to the shares, which the First Defendant held on trust for her. 

The Claimant was also not validly removed as a Director, as the meeting was inquorate. The First Defendant removed her, not to further the company’s interests, but to further his own.

In the unfair prejudice petition, allegations of unfair prejudice were proven. In his judgment, the judge stated as follows: “What I have accepted amounts to a litany of events which involve the management of the affairs of the company orchestrated by [the main Defendant]. That conduct was prejudicial to [the Claimant] as a shareholder and that prejudice is plainly unfair”. He further commented that the main Defendant has a “highly manipulative side to his character”.

Accordingly, the Claimant was entitled to be paid £202,500, for half of the company’s value, which the Judge found to be worth £405,000. The First Defendant was liable for the whole of that sum. The Third and Fourth Defendants were jointly and severally liable with him. The Second Defendant was jointly and severally liable with them all for one-third of that sum.

The judge also awarded the Claimant her costs, ordering the Defendants to pay 90% of her budgeted costs as an interim payment, with the remainder of the costs to be assessed.

Craig Williams and Rajiv Malhotra in the dispute resolution team at B P Collins acted for the successful Claimant. Counsel was Thomas Graham of New Square Chambers.

For details of full judgment, visit: https://www.bailii.org/ew/cases/EWHC/Ch/2019/311.html

Craig Williams

Craig Williams

Tel: 01753 279037

Stay in touch

Phone: +44 (0) 1753 889995

Email: enquiries@bpcollins.co.uk

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