Maidment v Attwood & Ors

For a petition under section 994 of the Companies Act 2006, the public availability of company accounts does not impose a duty on a minority shareholder to investigate wrongdoing before seeking relief. A director who fixes remuneration by reference to personal interests, misuses company assets, or sells assets without regard to the company’s interests may thereby cause unfair prejudice.

Where the company is insolvent, the court must apply the remedy flexibly. If there is a real prospect that claims arising from the wrongdoing will eliminate the deficiency and produce a surplus for members, the petition should be adjourned for a further hearing rather than dismissed. Loss from unauthorised use of a trading name is normally measured by an arm’s-length licence fee.

Maidment v Attwood & Ors concerned a 25% shareholder’s petition alleging unfairly prejudicial conduct in the affairs of Tobian Properties Ltd, an insolvent estate-agency company. The controlling director had drawn excessive remuneration, allowed an associated company to use Tobian’s trading name without payment, and sold its goodwill and trading name to that company shortly before liquidation for £5,000 plus VAT.

HHJ Hodge QC dismissed the petition, despite finding the relevant conduct and breaches of duty, principally because the shareholder could have discovered the remuneration from accounts filed at Companies House. The shareholder appealed from the High Court decision, [2011] EWHC 2186 (Ch). The central question was whether the misconduct amounted to unfair prejudice and, given Tobian’s insolvency, whether the petition should instead proceed to a further hearing on the value of the company’s potential claims.

1. Appeal allowed. Arden LJ, with whom Aikens and Kitchin LJJ agreed, held that the judge had erred in dismissing the petition. Public filing of the accounts did not create a diligence requirement which could prevent a shareholder relying on excessive remuneration in an unfair-prejudice petition.

2. The statutory concept of unfairness is flexible but principled. Applying O’Neill v Phillips [1999] 2 BCLC 1, the corporate bargain includes an implied expectation that directors will perform their duties. Mr Attwood’s setting of his own remuneration by reference to personal interests, rather than Tobian’s interests and ability to pay, was a separate breach of duty and unfairly prejudicial conduct.

3. In an insolvent company, the usual division between a liability hearing and a quantum hearing is not fixed. The proper question was whether there was a real prospect that recovery for excessive remuneration would exceed the company’s creditor deficiency and yield value for members. That threshold was met. It was procedurally fair and just to remit quantification to a further hearing.

4. By allowing Epyc to use Tobian’s trading name without payment, Mr Attwood failed to protect Tobian’s interests. The appropriate loss was the arm’s-length licence fee which Epyc would have paid for use between 2005 and 2008. As a substantial remuneration claim was already to proceed, this claim should also be valued at the further hearing.

5. Mr Attwood also breached duty when fixing the eve-of-liquidation price for Tobian’s goodwill and trading name by reference to the amount needed to place Tobian into voluntary liquidation rather than Tobian’s best interests. There was a real prospect that the assets had been undervalued, so that claim was also remitted. No buyout order or other final relief was made because the value of the shares remained to be determined.

• Court of Appeal (Civil Division): Allowed the shareholder’s appeal in Maidment v Attwood & Ors [2012] EWCA Civ 998. The dismissal of the unfair-prejudice petition was set aside and the valuation issues were to proceed to a further hearing.

• High Court of Justice, Chancery Division, Companies Court: HHJ Hodge QC dismissed the shareholder’s petition in [2011] EWHC 2186 (Ch).