Rahman v Malik & Ors

The petitioner presented a petition under s 459 Companies Act 1985 which, by common consent, continued under s 994 Companies Act 2006. The court applied the principles in O'Neill v Phillips and considered whether the corporate affairs were conducted in a manner unfairly prejudicial to the petitioner.

The judge found that, in or about July 1999, the parties agreed that the petitioner would succeed his father as a 50% participant in the family restaurant business and would be appointed a director. The respondent, Mr Malik, failed to appoint the petitioner as a director, excluded him from management after an August 1999 incident and treated the company as controlled by himself. Mr Malik also signed a November 1999 VAT return in the petitioner's name without authority. The company accounts showed declared dividends which the petitioner had not been paid; the court found some payments by Mr Malik were made without the petitioner’s authority and could not be set off against the petitioner’s share.

The judge accepted there was some under-declaration of profits for VAT purposes after 1 August 1999 but concluded the appropriate finding was under-declaration of about 15% for the first two accounting periods (to 31 May 2000 and to 31 May 2001). On these findings the petitioner established unfair prejudice and was entitled to relief.

Background and parties: The dispute concerned the Gate of India (Tynemouth) Limited, a family-run restaurant business operated through successive corporate vehicles. The petitioner, Shajnur Rahman, claimed he was agreed to succeed his father as a 50% participant in the business and to become a director. The respondents were Abdul Malik, his daughter Runa, and the company.

Procedural posture and relief sought: The petition was presented under s 459 Companies Act 1985 and, by agreement following commencement of the Companies Act 2006 provisions, continued under s 994. The petitioner sought relief for conduct unfairly prejudicial to his interests, including orders for purchase of his shares and payment/accounting of unpaid dividends and adjustments for alleged under-declaration of profits.

Issues for decision:

• Whether there was an agreement in or about July 1999 that the petitioner would succeed his father and be appointed a director (the Agreement Issue);
• Whether the petitioner was excluded from the company in late 1999 or voluntarily ceased involvement (the Exclusion Issue);
• Whether the petitioner authorised the use of his name/signature on the November 1999 VAT return;
• Whether dividends recorded in the accounts had been paid to or applied for the petitioner’s benefit;
• Whether there had been systematic under-declaration of profits and, if so, to what extent.

Court’s reasoning and findings: The judge preferred the petitioner’s and his father’s evidence on the central agreement: the petitioner was to take his father’s 50% interest and to be a director. Mr Malik reneged on that agreement, did not appoint the petitioner as director and thereafter excluded him. The judge found that Mr Malik had signed the November 1999 VAT return using the petitioner’s name without authority. Accounts showed declared dividends totalling £245,000 for 1 August 1999 to 31 May 2004; apart from certain sums (a court ordered £66,500 and £15,000 the petitioner withdrew), the petitioner had not received his share. The judge accepted there was some suppression for VAT purposes after incorporation of the company and fixed an under-declaration of 15% for the first two accounting periods (to 31 May 2000 and to 31 May 2001), but did not accept the extreme allegation of 100% suppression. Delay between exclusion and petition was considered but not held to be a bar to relief given the petitioner’s personal circumstances and intervening events. Offers to buy out the petitioner were considered and the court held the petitioner was entitled to refuse the offers.

Remedy: The court ordered that Mr Malik should purchase the petitioner’s shares at 50% of their value (valuation date to be the date of the order). The petitioner is entitled to his share of dividends as per the accounts (subject to reconciliation) and an increase of 15% for the first two accounting periods; credit was to be given for the £66,500 obtained under summary judgment and the £15,000 taken from the company account. If parties cannot agree, further inquiries or hearings were to follow.

First instance: The petition under s 994 Companies Act 2006 (continued from s 459 Companies Act 1985) succeeded. The court found an agreement in July 1999 that the petitioner would succeed his father and be a co-director and 50% participant; Mr Malik breached that agreement by excluding the petitioner, misusing the petitioner’s name on a VAT return and failing to account for dividends. The petitioner was entitled to equitable relief: Mr Malik must buy the petitioner’s shares at 50% of value and the petitioner is entitled to his share of declared dividends (with a 15% upward adjustment for the first two accounting periods), subject to credit for sums already received and to any necessary accountings or inquiries.