Attwood v Maidment & Ors (earlier judgment)

This is a first-instance decision on two unfair-prejudice petitions brought under section 994 of the Companies Act 2006 (Part 30). The court found that Annacott Holdings Limited's affairs had been conducted in a manner unfairly prejudicial to Mr Attwood: the sole director, Mr Maidment, sold 46 investment properties to himself at less than full market value, failed to take adequate steps to obtain proper market valuations and thereafter used or purported to use significant sale proceeds in an opaque overseas investment (MLP) which the court regarded as, on the balance of probabilities, not a genuine investment of Annacott’s funds. The judge rejected Mr Maidment’s account of a fluctuating-share-ownership arrangement and found that Mr Attwood was the beneficial owner of 50 per cent of Annacott. The Tobian petition (brought by Mr Maidment against Mr Attwood in respect of Tobian Properties Limited) was dismissed: the conduct complained of did not produce unfair prejudice to Mr Maidment as a shareholder in Tobian in the particular insolvency context and on the evidence. The court reserved the precise form of relief in relation to Annacott (provisionally indicating a buy-out as likely appropriate).

Background and parties. Two petitions under section 994 were heard together. The Annacott petition (presented 22 December 2008) was brought by Mr Allan Attwood (holder of 2,500 shares, alleged 50%) against Mr Geoffrey Maidment (2,499 shares and sole director) and Ms Sarah Maidment (1 share). The Tobian petition (presented 16 November 2009) was brought by Mr Maidment against Mr Attwood and Ms Nicola Heard in relation to Tobian Properties Limited (Tobian), an insolvent estate-agency business.

Nature of the applications (relief sought). Both petitioners sought relief under section 994 CA 2006 on grounds of unfair prejudice. The Annacott petition challenged the sale of Annacott’s property portfolio to Mr Maidment and alleged misappropriation or reckless investment of sale proceeds (MLP). The Tobian petition complained of diversion of the Oliver Jaques trading name to another company (Epyc), excessive remuneration, and transfer of Tobian’s business prior to liquidation.

Issues for decision.

• Ownership and beneficial interest in Annacott (whether a fluctuating-share ownership or a 50/50 beneficial split).
• Whether transfers of Annacott properties to Mr Maidment were made at undervalue and/or in breach of directors’ duties and statutory provisions governing substantial property transactions.
• Whether the alleged investment in MLP represents a genuine investment, or the concealment or misappropriation of sale proceeds.
• Whether Tobian petition allegations established unfair prejudice to Mr Maidment as a shareholder of Tobian, having regard to Tobian’s insolvency and the interests of creditors.
• Procedural and evidential issues including credibility of witnesses and effect of late disclosure.

Court’s reasoning and findings.

• Credibility: The judge made detailed credibility findings. Mr Attwood was found to be unreliable in parts of his evidence but not deliberately dishonest overall. Mr Maidment was found to be an unsatisfactory and, in key respects, an untruthful witness. Several other witnesses were assessed (some reliable, some not).
• Ownership: The contemporaneous documents and conduct supported the conclusion that Mr Attwood was the beneficial owner of 50 per cent of Annacott; the pleaded ‘fluctuating share ownership’ arrangement was rejected for lack of evidential foundation and practical coherence.
• Property transfers: The court accepted that the 46 properties were sold by the sole director to himself for less than full market value. The judge found the use of a single, non-specialist sales valuation (Base Property Specialists) for many properties was inadequate, and that discounts applied by Mr Maidment (e.g. for tenanted status and saving on estate-agent fees) were inappropriate to the purchaser’s own position.
• Statutory provisions: The judge applied the statutory regime for substantial property transactions (section 320 of the Companies Act 1985 as applicable and section 190 of the Companies Act 2006 which replaced it), concluding that the overall arrangement to transfer multiple properties to the director ought to be treated in aggregate and that the director did not take sufficient steps to protect the company interest. Non-compliance with the disclosure provision (section 317 of the 1985 Act) was treated as a technical defect but the substance of self-dealing and unfairness remained.
• MLP investment and missing funds: The judge found on balance that the claimed investment in MLP was not shown to be genuine or that shareholders’ funds had in fact been invested as represented; alternatively the investment was made recklessly and in breach of the parties’ common understanding of Annacott’s business. The judge concluded Mr Maidment had effectively engineered an informal winding-up of Annacott to deprive Mr Attwood of value.
• Tobian petition: The court concluded that although there were breaches (Epyc trading as Oliver Jaques, remuneration issues, etc.), in the context of Tobian’s insolvency and the absence of evidence that Mr Maidment as a shareholder suffered loss beyond the creditors’ deficiency, the conduct did not amount to unfair prejudice under section 994 and the Tobian petition was dismissed.

Remedy and procedural outcome. The court granted the Annacott petition and will determine relief at a further hearing; prospectively a buy-out of Mr Attwood’s 50 per cent interest on specified valuation assumptions was provisionally indicated. The Tobian petition was dismissed. The court noted effects of late disclosure by Mr Maidment when assessing reliability of late evidence but did not allow that to alter the substantive findings.

This is a first-instance decision. The court dismissed the Tobian petition but upheld the Annacott petition, finding that Annacott’s affairs had been conducted in a manner unfairly prejudicial to Mr Attwood. Rationale: detailed adverse credibility findings concerning Mr Maidment, principled treatment of director self-dealing and substantial-property-transaction rules (treating the transfers as an aggregate arrangement), acceptance that the properties were sold at undervalue and that the sums claimed to have been invested offshore (MLP) were not shown to be genuine or were recklessly invested, and that Mr Maidment’s conduct effectively informalised a liquidation to Mr Attwood’s detriment. The precise remedial order was reserved for a further hearing (provisional view: buy-out on a pre-transfer valuation basis).