Clark v Utilty Consultancy Services Ltd & Ors

Relief for unfairly prejudicial conduct requires conduct affecting the petitioner in the capacity of a shareholder. Conduct occurring before the petitioner acquired a minority shareholding cannot ordinarily establish prejudice for the purposes of that minority-shareholder remedy. Allegations must be particularised and supported by evidence. A company’s inability to pay debts as they fall due is sufficient to establish cash-flow insolvency; it is unnecessary to determine balance-sheet insolvency where the former is clear. Draft or unadopted accounts do not themselves establish unfair prejudice and may not bind a liquidator. Questions about granting relief after a winding-up order may arise, but need not be decided where the petition fails on liability.

The petitioner was formerly the majority shareholder and director of Clark Construction Initiatives Ltd. Following completion of a development project, he transferred his shares to the respondents and later received a 24 per cent shareholding. The company subsequently ceased trading, the petitioner was removed as a director and employee, and the company entered compulsory liquidation.

He presented a petition under section 459 of the Companies Act 1985, alleging that the respondents had diverted company assets, misapplied company funds, failed to provide information, removed him as director and procured an improper winding-up. The central issue was whether any of the alleged conduct, occurring after he became a minority shareholder, was unfairly prejudicial to him in that capacity.

The petition was dismissed. The petitioner failed to establish unfairly prejudicial conduct for the purposes of section 459 of the Companies Act 1985.

1. Relevant capacity. The petition relied on conduct after August 2005, consistently with the petitioner’s previous majority holding. The court held that he could not have been prejudiced as a shareholder before acquiring the 24 per cent shareholding on 17 January 2006. Alleged diversion of sums during the earlier development period therefore could not support the petition, and in any event was unsupported by evidence.
2. Evidence and accounts. The allegations concerning hire invoices, payments relating to later developments, loans, information and the treatment of UCS as a creditor were unparticularised or unsupported. Draft accounts prepared after the company entered liquidation could not themselves constitute unfair prejudice and would not bind the liquidator if incorrect.
3. Directorship and employment. The relationship of trust and confidence had to be assessed in the changed circumstances. After the development ended, the respondents owned the company, the petitioner was a salaried employee and the company depended on UCS for funding. There was no legal or moral obligation to maintain him as an employee or director, and his removal did not unfairly prejudice him as a minority shareholder.
4. Winding-up. The company was plainly unable to pay its debts as they fell due because it had no work and UCS would not continue funding it. That established insolvency without deciding balance-sheet insolvency. The petition to wind up the company was therefore not unfairly prejudicial on the evidence.
5. Relief did not arise. The court observed, without deciding, that the unusual presentation of a section 459 petition after compulsory liquidation raised important questions about when such relief could properly be granted.