Allmark v Burnham & Anor

In an unfair-prejudice petition, the court has a wide discretion to grant relief suited to the prejudice proved and is not confined to the remedy sought in the petition. A proposed buy-out will provide an alternative remedy only if its terms offer a fair and reliable basis for valuation and determination. Where the company’s records are materially unreliable and the majority shareholder has diverted business or assets to a competing enterprise, an expert-determination offer may be inadequate.

In a quasi-partnership company, a minority shareholding may require valuation without a minority discount. The court may, in exceptional circumstances, order a wrongdoer personally to secure repayment of a shareholder loan, indemnify guarantee liabilities, and purchase the petitioner’s shares at a fair value.

The petitioner held 36 of the 100 shares in Distinct Services Ltd and was also a director and creditor. The first respondent held the remaining shares and was the other director. The parties had entered the business on an equal-status, quasi-partnership basis, but their relationship broke down.

The petitioner alleged exclusion from management, failure to provide information, diversion of company business and assets to a competing business operated by the first respondent, defective accounting, and excessive remuneration. He sought relief under Part XVII of the Companies Act 1985, including a buy-out and repayment-related orders.

The central issues were whether unfair prejudice was established, whether the respondent’s offers constituted a satisfactory alternative remedy, and what relief and valuation should be ordered.

1. Unfair prejudice. The petitioner proved unfairly prejudicial conduct of the company’s affairs. The respondent excluded him from management, failed to provide agreed information, treated him as though he were no longer a director or shareholder, diverted goodwill, stock, fixtures and staff to Royal’s Greetings, failed to maintain proper accounts between the businesses, and made excessive remuneration payments. The respondent’s conduct breached his fiduciary obligations to the company.
2. Alternative remedy. The informal arrangement reached on 26 September 2003 was neither a concluded agreement nor a firm offer. The later offer of expert determination was also inadequate. The available accounts did not give a true and fair view, and the treatment of Royal’s Greetings in any valuation was unresolved. The offers therefore did not provide a satisfactory alternative remedy which the petitioner ought reasonably to have accepted. The court applied the guidance on reasonable offers in O’Neill v Philips [1999] 1 WLR 1092.
3. Relief. Under section 461(1) of the Companies Act 1985, the court could grant relief beyond the precise forms sought. Given the evidential difficulties and the risk that derivative or insolvency proceedings would be uneconomic, it ordered the first respondent to be jointly and severally liable with the company for the petitioner’s £65,000 loan and accrued interest, to procure repayment, and to indemnify and facilitate release from the petitioner’s guarantee liabilities.
4. Shares and valuation. The petitioner’s registered 36 per cent holding was valued as such, but without a minority discount. The parties’ relationship had the features of a quasi-partnership. The court adopted a broad, rough-and-ready valuation, treating Royal’s Greetings as part of the company’s business, allowing for directors’ borrowing and the lease option, and fixing the fair value of the shares at £30,500. A further salary adjustment of £1,000 was allowed, but no additional interest on the share value.
5. The court declared unfair prejudice and granted the relief described above, with the detailed timing and costs provisions to be settled after further submissions.