Phoenix Office Supplies Ltd. & Ors v Larvin

A quasi-partnership does not, by itself, give a minority shareholder a right to withdraw at will and require the company or fellow shareholders to purchase the shares at full, undiscounted value. Relief under sections 459 and 461 of the Companies Act 1985 depends on unfair prejudice to the member’s interests and on the equitable arrangements or understandings governing the company. The protection commonly available to an excluded shareholder is distinct from a right of unilateral withdrawal by a shareholder who chooses to leave for personal reasons. A clear contractual or equitable entitlement to a full-value buyout requires more than an informal, inconclusive discussion. A continuing director may seek information relevant to an otherwise valid shareholder claim, but withholding information cannot justify a full-value buyout where no such entitlement exists.

Shaun Larvin was a one-third shareholder and director of Phoenix Office Supplies Limited, a small company operated on a quasi-partnership basis with Jonathan Parish and Brian Ogden. For personal reasons, he left his employment and sought to sever his connection with the company while retaining his directorship until his shares were purchased.

The Chancery Division found unfair prejudice under section 459 of the Companies Act 1985 and ordered the company and the other shareholders to purchase his shares for their full assessed value. The appeal concerned whether a departing minority shareholder had an equitable right to require such a purchase, whether exclusion from access to company information constituted unfair prejudice, and, if relief stood, the appropriate valuation basis and date.

1. Appeal allowed. The order requiring Phoenix Office Supplies Limited, Jonathan Parish and Brian Ogden to purchase Mr Larvin’s shares for £290,000 was set aside, and the petition was dismissed. Costs of the appeal and petition were awarded to the respondents.
2. Per Lord Justice Auld, with the agreement of Lord Justices Clarke and Jonathan Parker, sections 459 and 461 of the Companies Act 1985 protect members in their capacity as members. The statutory remedy addresses unfairness arising from breach of agreed terms or from inequitable reliance on strict legal powers. It does not generally protect a person merely as a director or employee.
3. The company was a quasi-partnership, but that status did not create a right of unilateral withdrawal. The reasoning in O'Neill v Phillips [1999] 1 WLR 1092 distinguished exclusion by the majority from a member’s voluntary departure. It would usually be unfair to exclude a minority shareholder without a reasonable offer, ordinarily at a value representing the same proportion of the company as the shareholding. That principle did not entitle a shareholder who chose to leave for personal reasons to put his shares on the others at full value.
4. The informal 1995 discussion did not amount to a concluded agreement and did not clearly establish an equitable obligation to provide a full-value exit. Article 6’s transfer veto likewise did not demonstrate such an entitlement. A right with potentially ruinous consequences for a small company and its shareholders required clear expression.
5. Mr Larvin remained entitled, as a continuing director, to information needed to advance any shareholder claim to which he was entitled. However, the judge had not identified specific prejudice caused by the withholding of information, and the information issue could not support the full-value relief sought once the alleged put-option entitlement failed.
6. The valuation issues were therefore academic. The court added that, had the main issue been decided for Mr Larvin, it would have been difficult to disturb the judge’s assessment or valuation date, having regard to the discretion described in Profinance Trust SA v Gladstone [2001] EWCA Civ 1031; [2002] 1 WLR 1024.

• Court of Appeal (Civil Division): allowed the appeal, set aside the Chancery Division order and dismissed the petition.
• Chancery Division, Manchester District Registry: Blackburne J found unfair prejudice under section 459 of the Companies Act 1985 and ordered a full-value purchase of Mr Larvin’s shares.