Kiani v Cooper

The court considered an application under section 261 of the Companies Act 2006 for permission to continue a derivative action (as defined by section 260) brought by a shareholder-director on behalf of Woodlands Properties 2006 Limited. The judge applied the statutory test in section 263, including the mandatory bar in section 263(2) and the factors in section 263(3), and the duty imposed by section 172 regarding what a notional director would do.

The claimant relied on three heads of alleged breach of fiduciary duty by the defendant director: (1) demands that sums advanced by him were repayable as loans rather than remaining as member contributions, (2) invoices and a default judgment obtained by a related company, DPM Property Services Limited, containing an alleged unauthorised overhead/commission and pursued without the co-director's knowledge, and (3) unexplained payments from the company's account to Cranham Facilities Limited, a company apparently beneficially linked to the defendant. The judge found that there was a strong case to answer on those points on the material before the court and that the claimant was acting in good faith.

Accordingly the court granted permission to continue the derivative claim, but limited permission to the disclosure stage. The court also indicated it would, unless undertakings were provided, continue interim restraints on the presentation of creditors' winding-up petitions. On costs, the court ordered that the company should meet the claimant's costs of the derivative proceedings but refused to grant the claimant an indemnity for any adverse costs order; that risk was to be borne by the claimant subject to review after disclosure. The court also indicated it would accede to an application to change the company's registered office to the accountants' address to avoid non‑disclosure of process.

Background and parties: The claimant, Mrs Kiani, a director and shareholder of Woodlands Properties 2006 Limited, applied under section 261 Companies Act 2006 for permission to continue a derivative action on behalf of the company against her co‑director and co‑shareholder, Mr Cooper, and a related company, DPM Property Services Limited. The company had been formed to develop property; a subsequent development gave rise to the present dispute. There were numerous related proceedings between the parties.

Procedural posture: Interim permission had been given on paper. There were earlier without‑notice orders restraining creditors' petitions, and a separate member petition and injunction existed but were not determinative of this hearing. The present hearing concerned (i) permission to continue the derivative claim under section 261/263, (ii) continuation of restraints on presentation of creditors' winding‑up petitions, (iii) the question of indemnity for the claimant's costs from company assets, and (iv) an application to change the company's registered office.

Issues framed by the court: (i) whether the claimant had established a prima facie case that the company had a cause of action arising from a director's default, breach of duty or breach of trust; (ii) whether permission must be refused under section 263(2) because no notional director acting under section 172 would continue the claim; (iii) whether the claimant was acting in good faith under section 263(3)(a); (iv) whether there were alternative remedies (including unfair prejudice under section 994) which precluded the derivative route; (v) whether the claimant should be indemnified from company assets for her costs; and (vi) whether interim restraints on creditors' petitions should continue and whether the registered office should be changed.

Court’s reasoning and findings: The court examined evidential disputes but concluded that on the material before it there was a strong case to answer on the three pleaded heads: disputed characterisation of advances (member contributions v director's loans), the DPM invoices and the obtaining of a default judgment without involving the co‑director, and payments to Cranham Facilities Limited which lacked corroboration and raised concerns about beneficial ownership. The defendant had failed to produce corroborative documentation despite opportunity. The claimant's good faith was accepted (subject to conditions concerning withdrawn funds). The court considered alternative remedies, including a possible unfair‑prejudice petition under section 994, but concluded that availability of alternative but more roundabout remedies did not render permission inappropriate. On the section 172 hypothetical director test the judge concluded a director acting to promote the company's success would, on the present material, wish to continue the claim at least to disclosure.

Disposition: Permission to continue the derivative claim was granted but limited to disclosure. The court was prepared to continue restraints on presentation of creditor winding‑up petitions unless undertakings were given. The claimant was to have her costs borne by the company but no indemnity for adverse costs; that allocation was to be reviewed after disclosure. The court indicated it would, if it has jurisdiction, order the registered office changed to the accountants' address to prevent concealment of process.

Wider context: The judgment applies and explains the two‑stage statutory procedure for derivative claims under the Companies Act 2006 (sections 260–263) and illustrates the court’s approach to permission where there are serious evidential disputes, conflicts of interest, and threatened creditor petitions. The judge took a pragmatic approach by granting limited permission to the point of disclosure and by allocating risk on costs subject to review.

This is a first‑instance decision. The court granted permission under section 261 Companies Act 2006 to continue the derivative claim on behalf of Woodlands Properties 2006 Limited but limited that permission to the disclosure stage. The judge found that the claimant had established a strong prima facie case that there were breaches of directors' duties by Mr Cooper on the material before the court, that the claimant was acting in good faith and that a notional director acting under section 172 would wish to continue the claim at least to disclosure. The court indicated it would continue interim restraints on presentation of creditors' winding‑up petitions unless undertakings were given. On costs, the company was ordered to meet the claimant's costs of the proceedings but the claimant was not granted an indemnity for any adverse costs order; that allocation would be reviewed after disclosure. The court also indicated it would accede to an application to change the registered office to the accountants' address to avoid concealment of process, if satisfied of its jurisdiction to do so.