Steele v Stuart

The court considered a petition brought under section 459 of the Companies Act 1985 (replaced by section 994 of the Companies Act 2006) seeking a buy-out of the petitioner’s shares and, alternatively, winding-up under the Insolvency Act 1986. Key legal principles applied were the criteria for an "open offer" in response to an unfair prejudice petition as derived from O'Neill v Phillips and the narrowness of the court's jurisdiction to strike out a petition. The respondents had made two open offers to purchase the petitioner’s shares at an undiscounted pro rata value by an independent valuer and to meet specified costs. The petitioner declined, preferring valuation after resolution of a related property action which materially affected value.

The judge held that, because a reasonable open offer had been made and because the petition was pursued without present intention to accept an offer that mirrored the relief sought, the petition was either premature or an abuse of process. The petition was therefore struck out and the application for injunctive relief restraining use of company funds in related proceedings was refused.

This was a first instance hearing of a petition under section 459 of the Companies Act 1985 (now replaced by section 994 of the Companies Act 2006) presented on 23 July 2007 by the petitioner, a minority shareholder in JHS Land Limited. The petitioner sought a buy-out of his shares on grounds of alleged unfair prejudice, principally exclusion from management, and in the alternative a just and equitable winding-up under the Insolvency Act 1986. The respondents were the two majority shareholders and the company.

The respondents made two open offers to purchase the petitioner’s shares: the first (13 August 2007) proposing an asset-based, undiscounted pro rata valuation by an independent valuer and an offer to meet costs if the petitioner withdrew the petition; the second (10 October 2007) repeated that offer and alternatively proposed valuation once the related property action had concluded. The petitioner declined to accept those offers and argued that valuation should await the outcome of a separate property action between the parties because that action could significantly affect share value.

The court framed the central issues as:

• whether the open offers met the criteria such that the petitioner could no longer properly complain of unfair prejudice;
• whether the petition as presented was premature or constituted an abuse of process because the petitioner refused to accept offers mirroring the primary relief sought; and
• whether the court should restrain the respondents from using company funds in defending and counterclaiming in the related property action.

The judge reviewed the correspondence and offers, noting authorities on the narrow circumstances in which a petition should be struck out and the significance of an open offer that met the relevant criteria. The court found the first offer to be reasonable and that the petitioner’s insistence on awaiting the property action undermined the stated basis for the winding-up alternative. The judge concluded that proceeding with the petition in those circumstances was either premature or an abuse of process because the petitioner had no present intention to accept a buy-out on the terms which matched his pleaded relief. The court struck the petition out, refused the injunctive relief seeking to restrain use of company funds, and declined to grant leave to amend in a manner that would continue the petition pending the outcome of the property action. The judge observed that staying winding-up proceedings was undesirable and that the petitioner could bring a fresh petition or pursue appropriate steps once the property action was resolved.

This is a first instance decision. The court struck out the petition and refused the injunctive relief sought. The rationale was that the respondents had made reasonable open offers that reflected the relief claimed and the petitioner had no present intention to accept such offers but sought to delay valuation pending the outcome of a related property action; pursuing the petition in those circumstances amounted to a premature proceeding or an abuse of process.