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    Where an individual shareholder in a company and its subsidiary had conducted business in them in a manner unfairly prejudicial to the second principal shareholder by his persistent failure to adhere to his agreed management role, his failure to give proper consideration to the acceptance of financing proposals available to the companies and a coup to take control of them, relief was granted to the second shareholder under the Companies Act 2006 s.996 and the first shareholder was ordered to sell to it his shares in the first company.

    The petitioner (O) issued an unfair prejudice petition against the respondents. The first respondent (B) cross-petitioned against O, the fourth respondent company (Q) and a subsidiary company (P). O was a major venture capital firm. It and B were the principal shareholders in Q. B owned P, whose principal business was in developing new technology in the form of a drive system of electric motors. O invested in P, providing finance for the business and paying a sum to B for part of his shareholding. That investment was made on the common understanding that a further sum would be required to enable P’s business development plan for the drive system to be realised.

    Following a corporate restructuring, Q became P’s holding company. The principal business of the new group remained in P, and it was common ground that P, and then Q and the businesses it controlled, were to be run as a joint venture between B and O in the nature of a quasi-partnership. The development of the drive system was not financed further and P became insolvent. In due course, following the administrators’ sale of P’s business, a company owned by O purchased it. Both O and B subsequently complained about things done by the other in relation to the affairs of Q and the conduct of P’s business. O brought a petition under the Companies Act 2006 s.994 seeking relief in the form of an order that B be required to sell his shares in Q to O.
    By a cross-petition, B claimed an order requiring O to sell its shares in Q to him. O contended that B had acted in a manner unfairly prejudicial to its interest in Q and, through it, in P by, in particular, seeking improperly to take control of Q by steps taken by him at a certain board meeting so as to enable himself improperly to take control of P by changes to the board of P, seeking to take an improperly intrusive and extensive role in the management of P beyond what had been agreed he should do and improperly promoting his own personal interests over those of Q and P by failing to agree to accept additional funding for Q and P by way of the issuing of equity in Q in circumstances when such additional funding was necessary to fulfil the joint venture on which he had embarked with O.
    B submitted that O had acted in an unfairly prejudicial manner in relation to his interest in Q and in P by withholding important information from him and by conspiring with others improperly to exclude B from involvement in the management of P’s business, to undermine his rights and influence in relation to the control of Q and O and to ensure that P’s business was run in such a way as to drive it into insolvency so that O could acquire the business for itself at a fraction of its true value.

    HELD: The criterion by which the court had to decide whether it had jurisdiction to grant relief was unfairness, in the context of conduct between competing businessmen, O’Neill v Phillips (1999) 1 WLR 1092 HL  applied. The remedial power available to the court under s.996 was a very wide one and included a power, in an appropriate case, to require a respondent to an unfair prejudice petition to sell his interest in the company in dispute to the petitioner, Nuneaton Borough Association Football Club Ltd (No1), Re (1989) 5 BCC 792 Ch D (Companies Ct) applied.

    That was an atypical order to make, since it was more usual that the petitioner was seeking an order that his interest be bought out by the respondent. In the instant case, it was striking that both O, in the petition, and B, in the cross-petition, sought orders allowing them to buy out the interest of the other and so remain in control of Q themselves. On the evidence, it was appropriate that such an order be made in favour of O. Although there were points on which O’s conduct was properly open to criticism, particularly in respect of failures to disclose a report or certain business contacts, O’s conduct had not in fact caused actual prejudice to B.
    Moreover, O’s conduct was very minor by comparison with that of B. He had conducted the business of Q and P in a manner unfairly prejudicial to O by, inter alia, his persistent failure to adhere to his agreed management role, his failure to give proper consideration to the acceptance of financing proposals available to Q and P, a coup to take control of Q and P and his insistence upon a bank mandate which gave him a right of veto over expenditure items contrary to the intention under the joint venture that such matters would be for the board and management of P.
    In those circumstances, it was appropriate to make an order under s.996 in favour of O requiring B to sell his shares in Q to O. The issue of setting parameters for establishing the price at which B should be required to sell his shares was adjourned.

    Judgment for claimant



    “Lawtel”:  23.2.09