Blunt v Jackson & Ors

A shareholder agreement may establish membership even where the company has failed to maintain a register or issue share certificates. In a company formed as a quasi-partnership, excluding a shareholder from management may constitute unfair prejudice, particularly where the exclusion includes removal as a director. Ordinary managerial decisions, even if reached improperly or involving conflicts of interest, do not necessarily amount to unfair prejudice unless they cause prejudice to the petitioner’s interests as a shareholder. The court may order retrospective rectification of the register where appropriate and where no third-party injustice would result.

The petitioner claimed to be a 50% shareholder and director of I Fit Global Ltd, a company established with the first respondent. He alleged that he had been excluded from management and that company funds had been used improperly. The respondents denied that he had ever held shares and contended that the matters complained of did not establish unfair prejudice.

The court tried two preliminary issues: whether the petitioner was a shareholder and whether, on that assumption, the matters alleged constituted unfair prejudice under Companies Act 2006, section 994.

1. Shareholding. The court found that the petitioner and the first respondent had agreed to establish the company in the nature of a partnership, with each holding half the shares. The company’s defective records did not displace that agreement. The bank letter describing the petitioner and the first respondent as 50% shareholders, the company secretary’s response to the petitioner’s attempted share sale, and the payments treated as dividends supported that conclusion.
2. The petitioner had become a member within section 112 of the Companies Act 2006, although he had never been entered in a register. The proper share capital was 100 shares, because no return of allotment supported the asserted increase to 102 shares. The petitioner was therefore entitled to 50 shares.
3. Unfair prejudice. The complaints concerning machines supplied to the first respondent’s daughter, a temporarily paid company expense, tools and rent were managerial matters. Although the rent decision involved a conflict of interest and was reached improperly, these matters did not themselves establish unfair prejudice under section 994.
4. The company was a quasi-partnership. Applying O’Neill v Phillips [1999] 1 WLR 1092, exclusion of a shareholder from such a company may constitute unfair prejudice. The petitioner’s removal as a director and subsequent exclusion from management were unfair and prejudicial to his shareholder interests.
5. The court considered that retrospective rectification was appropriate under section 125, following Re Sussex Brick Company [1904] 1 Ch 598. The parties were to make submissions on the appropriate order, and on further directions following the preliminary findings.