Moxon v Litchfield & Ors, Re LCM Wealth Management Ltd

Contractual provisions governing the removal of a shareholder-director and compulsory transfer of shares are not displaced merely because their operation is harsh or the company has quasi-partnership features. Equity and the unfair-prejudice jurisdiction may restrain contractual rights where their exercise is unconscionable or unfairly prejudicial, but otherwise the agreed consequences must take effect.

Where agreements and articles contain inconsistent Bad Leaver provisions, the court should prefer a restrictive interpretation where fairly available, while seeking to give the instruments a coherent combined meaning. Gross misconduct may include serious or repeated breaches showing such disregard for the company’s interests that continued association is unreasonable. A general authorisation of conflicts is ineffective under section 175 of the Companies Act 2006.

The petitioner was a founder, shareholder, director and executive employee of LCM Wealth Management Ltd. Following disputes with the other directors and shareholders, he was suspended, summarily dismissed and characterised as a Bad Leaver. The company sought to require him to transfer his shares at par value under the Shareholders’ Agreement and Articles.

He petitioned under section 994 of the Companies Act 2006, alleging unfair prejudice, breach of equitable understandings and invalid or unfair use of the contractual provisions. The central issues were whether his undisclosed involvement in RM2 and related property and investment ventures amounted to gross misconduct, whether those interests had been authorised, and whether the court should modify the contractual consequences.

1. Petition dismissed. The petitioner was properly characterised as a Bad Leaver. The injunction preventing transfer of his shares was continued pending ancillary submissions, after which the contractual transfer provisions would take effect.
2. Per Mr Justice Hildyard, the contractual framework was not swept away by equitable considerations or by the section 994 jurisdiction. Contractual rights remained subject to good faith and equitable restraint, but the agreed consequences had to follow unless their exercise was unconscionable or unfairly prejudicial (paras [42]-[56]).
3. The Shareholders’ Agreement, Articles and Service Agreement were to be construed together. Despite drafting inconsistencies, their combined effect was that a shareholder-director became a Bad Leaver if he fell within the relevant definition and his conduct entitled the company to terminate his employment without notice. He was then required to transfer his shares at par value under the applicable Articles (paras [57]-[67]).
4. The Side Agreement was not intended to create an enforceable contract, did not give rise to an estoppel, and was not a Relevant Agreement concerning the company’s management and affairs (paras [70]-[83]).
5. The purported June authorisation could not lawfully authorise the petitioner’s interests in RM2. Section 175 of the Companies Act 2006 required advance authorisation of an identified conflict; a general declaration was insufficient, and the interested director’s vote could not be counted. The shareholders had not unanimously varied the Shareholders’ Agreement (paras [189]-[196]).
6. Gross misconduct meant conduct of such seriousness, disrepute or disregard for the company’s interests and the obligations owed to fellow shareholders that continued association was unreasonable and summary dismissal was justified (paras [295]-[304]). The petitioner’s concealment of RM2 interests, diversion of company opportunities and contacts, misuse of confidential information and continuing breaches met that standard.
7. The absence of formal board meetings did not make the decisions incapable of ratification. The process was aggressive, but the petitioner had sufficient opportunity to respond and the circumstances justified summary termination before the proposed meeting (paras [275]-[294]).

First-instance decision. No appellate history is stated in the judgment.