Attwood v Maidment & Ors

On a petition under Companies Act 2006, conduct must be both prejudicial and unfair. A sole director’s sale of company assets to himself may amount to unfair prejudice where the assets are sold below market value, the transactions further an improper informal liquidation, or the director diverts the company from its agreed business for personal advantage. Statutory non-compliance that causes no prejudice may be merely technical. Where several asset transfers form one arrangement, their aggregate value may be relevant to the substantial-property-transaction provisions. Delay does not necessarily bar relief, particularly where the company is an investment vehicle and the complained-of conduct transforms the nature of the shareholder’s investment. Relief may include a buyout order.

Two petitions under section 994 of the Companies Act 2006 concerned two companies operated by former business associates. Mr Attwood petitioned in relation to Annacott Holdings Ltd, alleging that Mr Maidment had sold Annacott’s residential property portfolio to himself at an undervalue, misapplied or recklessly invested company money, denied Mr Attwood’s 50 per cent interest and informally liquidated the company.

Mr Maidment responded with a petition concerning Tobian Properties Ltd. He alleged excessive remuneration, diversion of the Oliver Jaques business to another company, and a transfer of Tobian’s business before liquidation for inadequate consideration. The petitions were heard together. The central issues were whether the conduct was prejudicial and unfair, and what consequence followed from the alleged statutory and fiduciary irregularities.

1. Tobian petition dismissed. Conduct must be both prejudicial and unfair. Mr Attwood’s purchase of Tobian’s remaining shares and failure to provide information did not satisfy that requirement. His remuneration was excessive, but it was disclosed in the company’s accounts and Mr Maidment had not inspected or requested them. The use of the Oliver Jaques name by Epyc breached Mr Attwood’s duties as director, but the offices were unprofitable and Tobian suffered no loss. The transfer of Tobian’s business before liquidation caused prejudice, but Mr Maidment did not establish that the assets were worth anything approaching the company’s substantial deficiency to creditors. Gamlestaden Fastigheter AB v Baltic Partners Limited [2007] UKPC 26 was distinguishable because the petitioner there was also a creditor.
2. Annacott petition allowed. The property transfers were self-dealings carried out pursuant to an arrangement to acquire Annacott’s properties. The relevant value was the value of the properties subject to their mortgages, applying the approach in Re Ultraframe (UK) Ltd v Fielding & Ors [2005] EWHC 1638 (Ch). The transfers nevertheless engaged the substantial-property-transaction provisions when assessed as one arrangement, and in any event were unfairly prejudicial because the properties were sold below market value and the transactions furthered an informal liquidation.
3. The investment of the sale proceeds in MLP was either a sham misappropriation or a reckless investment outside Annacott’s agreed residential buy-to-let business. Either conclusion constituted unfair prejudice. The transformation of a shareholder’s investment from London residential property into a North Cyprus investment company was unfair even if the investment had been genuine.
4. Delay and the parties’ division of responsibility did not bar relief. The conduct included diverting company funds, creating false corporate records and falsely asserting that a 50 per cent shareholder had only a minimal interest. Relief was granted, with its precise form reserved. The provisional view was a buyout of Mr Attwood’s shares by Mr Maidment.

In relation to the general requirement that conduct be unfair as well as prejudicial, the judge adopted the principle stated in Re Baumler (U K) Limited [2004] EWHC 7673 (Ch), reported at [2005] 1 BCLC 92.