Sethi v Patel & Anor

Where unfair prejudice is conceded and a shareholder buy-out is appropriate, the court will ordinarily make a purchase order rather than rely on an undertaking to buy. The order should not normally contain an escape clause based on the purchaser’s inability to raise the price. An order for interest or quasi-interest is available under the court’s broad jurisdiction, but the power must be exercised with great caution and supported by a fair evidential basis. In valuing shares, the court may require the valuation to reflect recoverable company claims, loans, overpayments and other adjustments existing at the valuation date.

Mr Sudhir Sethi presented a petition under section 994 of the Companies Act 2006 concerning Scitec Group Limited, in which he and Mr Alpesh Patel were equal shareholders and directors. Mr Patel conceded, for the purposes of the petition, that there had been unfair prejudice and that he should buy Mr Sethi’s shares. The remaining issues concerned the form of relief, whether payment should depend on Mr Patel’s financial means, interest or quasi-interest, and the valuation treatment of various company transactions at 13 March 2007.

1. Purchase order. The court ordered Mr Patel to purchase Mr Sethi’s shares. Where unfair prejudice and the need for a buy-out are conceded, a purchase order will ordinarily be appropriate. The history of failed proposals made the certainty of an order desirable. Mr Sethi’s conduct did not justify withholding that relief.

2. No escape clause. Following Re Cumana Ltd [1986] BCLC 430, the order was not made conditional on Mr Patel having the financial means to complete the purchase. Impecuniosity is no reason to withhold judgment for the amount due, and an escape clause would be impracticable and unsatisfactory.

3. Interest. The court accepted that the jurisdiction under section 994 of the Companies Act 2006 can extend to an interest-equivalent adjustment. However, Profinance Trust SA v Gladstone [2002] 1 BCLC 141 established that the power must be exercised with great caution. No sufficient reason existed here to award interest or quasi-interest, particularly as Mr Sethi had chosen the earlier valuation date rather than the date of the purchase order.

4. Valuation directions. The shares were to be valued as at 13 March 2007 on the basis that Scitec could recover £47,000 in overpaid rent, £100,000 owed by Mr Patel for refurbishment works treated as loans, and £67,707 arising from chargebacks. The valuation was also to take account, where relevant, of the evidence concerning bad debts, the treatment of the two cars, and the £21,500 Cyprus property payments.

5. The parties were directed to seek agreement on an order giving effect to the conclusions.