Fisher v Cadman & Ors

Conduct is unfairly prejudicial where company controllers breach the members’ constitutional agreement or violate wider equitable constraints governing their relationship. Acquiescence in informal departures from the articles may qualify what fairness requires, but a member may revive reliance on an unamended term by reasonable notice where that is equitable.

Unfair prejudice may include withholding information so seriously that a member cannot understand the company’s affairs or protect their interests, awarding controllers excessive unauthorised remuneration, or transferring value without good cause to another entity they control. Mismanagement must be serious. Courts should not second-guess legitimate commercial decisions taken on reasonable grounds.

The petitioner held about one third of the shares in a small family property company. Her two brothers were its directors and, acting together, its de facto controllers. She petitioned under sections 459 and 461 of the Companies Act 1985, alternatively seeking a just and equitable winding up under section 122(1)(g) of the Insolvency Act 1986.

She complained of failures to hold annual general meetings, provisions for the directors’ remuneration, inadequate explanations and information, an inflated provision and payments to another company controlled by the directors, inactivity in managing the property portfolio, and alleged deadlock. Her principal remedy sought was a purchase of her shares without a minority discount.

The central questions were which complaints amounted to conduct unfairly prejudicial to her interests and whether that conduct justified a compulsory purchase of her shareholding.

1. The unfair-prejudice petition succeeded in material part. The directors’ conduct made it intolerable to require the petitioner to retain her interest or sell only under the articles. She was entitled in principle to a buy-out order. The precise terms were left for later determination after the parties had considered the judgment.

2. Unfairness under section 459 of the Companies Act 1985 is assessed objectively. Conduct may be unfairly prejudicial where controllers breach the articles or violate equitable constraints arising from the members’ wider relationship. The company was a quasi-partnership in this sense. Its family character, informal administration and transfer restrictions supported equitable constraints, although the petitioner had no agreed management role.

3. Longstanding acquiescence in informal departures from the articles affected the standard of fairness. It did not permanently extinguish the petitioner’s rights. By giving reasonable notice from 1996, she revived reliance on the requirement for annual general meetings. From 2000, the directors’ indefinite postponement of the promised meeting, without good reason or another means of answering reasonable questions, deliberately frustrated her access to information and was unfairly prejudicial.

4. The directors’ remuneration provisions breached the prior understanding that their limited management of the retained property portfolio would be unpaid. They also lacked approval in general meeting as required by article 76 and were excessive by any reasonable measure. The related failure to explain the provisions deprived the petitioner of a reasonable means of understanding a significant departure from past practice.

5. The directors also unfairly transferred economic value from the company to another company which they controlled. Only £9,236 was properly owing. Creating a £70,000 provision and making payments exceeding the proper debt disregarded the petitioner’s much larger proportional interest in the paying company than in the recipient.

6. The property-management complaint failed. Serious mismanagement can constitute unfair prejudice, but courts should not second-guess reasonable commercial decisions. On the evidence, holding dilapidated properties for capital appreciation rather than incurring uncertain renovation costs fell within the range of reasonable management decisions. The alleged deadlock also failed because the brothers co-operated in managing the company and dealing with the petitioner.

not stated in the judgment.