Parry v Bartlett

The court considered an application under section 261 of the Companies Act 2006 for permission to continue a derivative claim on behalf of Charles Parry Group Ltd (CPG) against Mr Bartlett. The alleged wrong was the dissipation of the net proceeds of sale of the company’s sole asset and a VAT refund into an account controlled by Mr Bartlett and payments from that account to Mr Bartlett and Whitegate Consulting Ltd.

The judge applied the statutory framework in sections 260–263 of the Companies Act 2006 (with the applicable transitional provision in paragraph 20(3) of Schedule 3 to the 2007 commencement Order) and the duty in section 172. He found a strong prima facie case of breach of fiduciary duty or breach of trust by Mr Bartlett in relation to the Barclays account and the Whitegate invoices were open to serious challenge. Ratification or authorisation by the company was not available because the company was deadlocked and the alleged wrongdoer could block any resolution. The applicant was held to be acting in good faith despite ancillary personal interests. Permission under section 261 was granted to continue the derivative claim.

This was a first instance application by Mr Charles Parry for permission under section 261 of the Companies Act 2006 to continue a derivative claim on behalf of Charles Parry Group Ltd (CPG), of which he and Mr Bartlett were equal shareholders and directors.

• Background and facts: CPG owned a single investment property which was sold in December 2005. The net sale proceeds and a subsequent VAT receipt were paid into a Red-Box account opened by Mr Bartlett. Large sums were transferred from that account to Mr Bartlett and to Whitegate Consulting Ltd, a company under Mr Bartlett’s control. Mr Parry alleged those transfers were in breach of trust and fiduciary duty and sought recovery on behalf of CPG.
• Procedural posture: CPG had been struck off and was restored to the register so these proceedings could be commenced. Mr Parry applied for permission to continue the derivative claim; directions had been given for an oral permission hearing after initial paper consideration.

The court framed the issues under the statutory test: whether the applicant disclosed a prima facie cause of action arising from negligence, default, breach of duty or breach of trust; whether a director acting under section 172 would pursue the claim; whether the impugned acts could be authorised or ratified by the company; whether the applicant acted in good faith; and whether there were realistic alternative remedies (including an unfair prejudice petition).

The judge found:

1. There was a strong prima facie case that substantial sums had been improperly diverted from CPG and that the invoices and payments to Whitegate were open to serious challenge.
2. A director acting in accordance with section 172 would, in the circumstances, attach importance to pursuing recovery so as to rectify the unfairness between the equal shareholders.
3. Ratification was not available: the company was effectively deadlocked and the alleged wrongdoer could prevent ratification; the Minute relied on by Mr Bartlett did not justify the scale of the payments.
4. Mr Parry was acting in good faith; any personal or ancillary benefits (for example a contribution claim under a guarantee) did not disqualify him from proceeding because the primary object was for the company’s benefit.
5. An unfair prejudice petition under section 994 was not a realistic or more appropriate alternative remedy on the facts.

For these reasons the court granted permission under section 261 for Mr Parry to continue the derivative claim on behalf of CPG against Mr Bartlett.

Permission was granted under section 261 of the Companies Act 2006 for Mr Parry to continue a derivative claim on behalf of Charles Parry Group Ltd against Mr Bartlett. The court found a strong prima facie case of breach of fiduciary duty/breach of trust in relation to dissipation of the sale proceeds and VAT refund; ratification was not available because the company was deadlocked; and the applicant was acting in good faith.