Bonham v Crow & Ors

Where a petition under section 459 of the Companies Act 1985 establishes unfair prejudice, the court must grant relief which addresses the matters proved. In valuing shares for a purchase order under section 461, the court must take account of contractual distribution rights and restore the financial consequences of improperly authorised remuneration. A finding that the company has no significant net asset value does not justify refusing relief where the shares have intrinsic or shareholder-specific value. The valuation must reflect lost distributions, appropriate interest and any other relevant value shown by the evidence. The appellate court may intervene where the judge’s discretionary valuation omitted a material consideration and was therefore plainly wrong.

Stephen Bonham appealed against the Cambridge County Court’s dismissal of his petition under section 459 of the Companies Act 1985. The judge had found unfair prejudice arising from excessive remuneration paid to the other directors and to a director’s wife, but concluded that Mr Bonham’s shares had no practical value and granted no relief. The appeal concerned the treatment of remuneration and joining fees in the valuation, interest on drawings, the valuation date and costs.

The central issue was whether the judge had failed to value the shares in a manner which gave effective relief for the unfair prejudice established.

1. Appeal allowed. The judge’s valuation and refusal to grant relief were plainly wrong because he failed to take account of the shareholders’ agreement and the distributions which would have been available had the unfairly prejudicial remuneration not been paid.

2. Under section 461 of the Companies Act 1985, relief is discretionary, but it must give relief in respect of the matters proved. In a buy-out valuation, remuneration wrongly withdrawn was to be recredited to the company’s accounts in the years in which it was paid. The distributions which Mr Bonham could then have required under the shareholders’ agreement were to be calculated and added to the purchase price.

3. The fact that the company had a deficit at the valuation date did not mean that the shares were valueless. The company continued to trade, had some intrinsic or internally generated goodwill, and the shares had value to the respondents in ending Mr Bonham’s involvement. The court therefore had to do the best it could on the evidence and value the shares on a broad and equitable basis.

4. Interest was properly added to the directors’ drawings and to the distributions which ought to have been made. The court provisionally adopted simple interest at 7 per cent per annum, subject to submissions.

5. Joining fees could not be written back into the 1996 accounts because the accounting policy had not been shown to be improper. They should, however, have been treated as equivalent to cash at bank and credited against the deficit. The judge was entitled to use the 1999 accounts and the petition date for valuation purposes.

6. The appropriate purchase price was £19,891, together with interest as directed. The costs orders required further argument, but the pre-litigation offers were properly disregarded because the petitioner could not know whether they were fair and they were not offers for an independent valuation.

• Court of Appeal (Civil Division): allowed the appeal from the Cambridge County Court order dated 24 November 2000 and ordered the purchase of the petitioner’s shares for £19,891 plus interest.