Maresca v Brookfield Development and Construction & Anor

The court held that the petitioner had not established unfair prejudice under section 994 of the Companies Act 2006 but that, on the contributories' petition, it would be just and equitable to wind up the company if no other reasonable remedy were available. The company was a quasi-partnership between two equal shareholders and its affairs were messy, dependent on a single joint directors' loan account prepared by the parties' accountant. Substituting a realistic valuation for work in progress rendered the company insolvent, and the petitioner’s real interest was as a creditor in respect of the directors' loan account rather than in the company’s equity. The judge declined to use the winding up jurisdiction where a practicable alternative existed and instead ordered a payment arrangement under section 125(2) of the Insolvency Act 1986: if BDC paid the petitioner £10,000 by 1 December 2013 she must transfer her share to the second respondent and the company would not be wound up.

Background and parties: The petitioner, Mrs Maresca, and the second respondent, Mr Pursall, were former partners in a personal relationship who each held one share and were directors of Brookfield Development and Construction Limited (BDC). The relationship ended and litigation followed as part of a dispute over the company and funds alleged to have been misapplied.

Nature of the application: The petitioner sought either an order requiring the second respondent to sell his shares to her at a fair value taking into account payments from company funds for his private purposes, or alternatively that BDC be wound up on the just and equitable ground. The petition also pleaded unfair prejudice under section 994 Companies Act 2006.

Key facts:

• BDC was formed to purchase, renovate and sell properties; the parties contributed substantial sums as loans and used the company account for mixed personal and business purposes.
• An accountant maintained a single joint directors' loan account to record injections and drawings.
• Two cheques totalling £43,257 were paid by the second respondent to the petitioner in March 2010 (one for the net balance of the company and one for repayment of alleged loans).
• Work in progress (11 Lime Grove) was overstated in the 2009 accounts; an expert valuation of £100,000 was accepted for realisable value.

Issues framed: Whether the petitioner had been unfairly prejudiced within section 994; whether it was just and equitable to wind up BDC; the proper treatment of the directors' loan account; whether the company was insolvent when realistic values were applied; and appropriate relief if winding up was not the only remedy.

Reasoning and outcome: The judge found no unfair prejudice: the parties were deadlocked but the second respondent had taken steps to offer buy-out and there was no demonstrated prejudice from administrative acts such as change of bank account. However, substituting the realistic valuation for work in progress made BDC insolvent. The petitioner’s principal entitlement was as a creditor under the directors' loan account. The court accepted the accountant’s approach of a single directors' loan account and found that large cash injections were intended to be recoverable while minor adjustments would not be closely parsed. Calculations produced a rounded entitlement which, after insolvency pro rata distribution and a small credit for sums already received by the petitioner, resulted in an additional payment of approximately £10,000 being just. Applying section 125(2) Insolvency Act 1986 the court ordered that if BDC paid the petitioner £10,000 by 1 December 2013 she must transfer her share to the second respondent and BDC would not be wound up.

The judgment emphasises that unfair prejudice and just and equitable winding up petitions are unsuitable vehicles for full-scale redistribution of quasi-matrimonial assets and that practical proportionality governs remedies in lower value company disputes.

This first instance petition was allowed in part. The court found no unfair prejudice under section 994 Companies Act 2006 but concluded that, while a just and equitable winding up would be available given the company’s insolvency and deadlock, a more proportionate remedy existed. The petitioner’s entitlement was quantified as a creditor claim under the directors' loan account; the court ordered that if BDC paid the petitioner £10,000 by 1 December 2013 she must transfer her one share in BDC to the second respondent and the company would not be wound up. The rationale was that the company was insolvent once a realistic WIP valuation was used, the petitioner’s principal remedy lay in repayment as a creditor, and a modest agreed payment would achieve a just outcome without the costs of winding up or further detailed accounting.