Blue Index Ltd, Re

In an unfair-prejudice share purchase, the court has a wide discretion to fashion relief that cures the established prejudice. The general approach is to value the petitioner’s shares pro rata, without a minority discount. A discount may be justified by special circumstances, including acquisition of the shares at a discounted price, but there is no rule that the absence of a quasi-partnership automatically requires a discount. The court must assess fairness in the circumstances, having regard to the petitioner’s status as a willing or unwilling seller and any available winding-up remedy.

The petitioner held 3% of Blue Index Ltd. He alleged unfairly prejudicial conduct by the two controlling directors, including dilutive share issues, alteration of the articles, excessive directors’ remuneration and inadequate dividends.

An order had already established his entitlement to have his shares purchased. The court therefore had to determine their fair value at 1 November 2006, decide whether a minority discount applied, assess compensation for excessive remuneration and determine interest.

1. Minority discount. The court followed the broad approach in Re Bird Precision Bellows [1986] Ch. 658 and treated the court’s task as identifying the established prejudice and fashioning relief to cure it. The unfair-prejudice jurisdiction is not confined to ordinary market valuation.
2. The general rule was that the petitioner’s shares should be valued without a minority discount. The relevant distinction was not simply between quasi-partnership and non-quasi-partnership companies. The central question was whether it would be unfair to treat the petitioner as a willing seller. A discount could be justified by special circumstances, particularly where the shares had originally been acquired at a discount.
3. The petitioner had paid a substantial premium for his shares and was an unwilling seller following unfairly prejudicial conduct. No discount was therefore appropriate. Alternatively, even on the approach in Irvine v Irvine (No 2) [2007] 1 BCLC 445, the company was a quasi-partnership, the petitioner was a sleeping partner, and special circumstances made a discount inappropriate.
4. The directors had breached their fiduciary duties in determining their own remuneration. The proper commercial remuneration was assessed at 10% of turnover. The fair value of the petitioner’s 3% holding at the valuation date was declared to be £300,000.
5. Compensation for excessive remuneration was to be calculated for the three financial years ending 30 September 2004, 2005 and 2006 by assuming remuneration, including pension contributions, at 10% of turnover, treating the resulting surplus and tax saving as additional dividends, and awarding the petitioner 3% of those dividends. The parties were directed to agree the figure.
6. Interest was awarded on the purchase price at the standard commercial rate for 18 months to judgment, reflecting delay caused by the criminal proceedings. No interest was awarded on the compensation for excessive remuneration.

The judgment records an earlier order by Registrar Derrett dated 9 July 2009 establishing judgment for the petitioner on the relevant claims. The present court quantified the purchase price and consequential compensation.