Thomas v Dawson & Anor

Relief for unfair prejudice under section 996 of the Companies Act 2006 involves a very broad discretion to fashion a fair and equitable remedy. A court directing a share purchase and obtaining valuation evidence is not necessarily bound to adopt the valuation mechanically, particularly where the evidence values an underlying business rather than the company or share. A share may have substantial value to the purchaser because control gives access to income, future improvement and recoveries otherwise unlikely while the parties remain deadlocked. On appeal, the question is whether the remedy falls outside the proper ambit of the discretion, not whether another solution would be preferable.

Mr Thomas and Ms Dawson each owned one share in Invicta Care Homes Limited, a quasi-partnership company operating a care home business. Following the breakdown of their relationship, the Chancery Division found unfair prejudice and directed Mr Thomas to purchase Ms Dawson’s share. An expert valuation valued the underlying care home business but not Invicta or the share, and indicated balance-sheet insolvency. On 8 September 2014, HHJ Keyser QC ordered that Mr Thomas should have an option to purchase the share for £55,000. Mr Thomas appealed, arguing that the share was worthless and that the judge had acted procedurally unfairly by departing from the valuation basis. The central issues were whether the judge could fix a fair price despite the valuation evidence and whether the remedy was within the discretion conferred by section 996 of the Companies Act 2006.

1. Appeal dismissed. The order giving Mr Thomas an option to purchase Ms Dawson’s share for £55,000 was within the judge’s statutory discretion.
2. Section 996 of the Companies Act 2006 confers a very broad discretion to do what is fair and equitable in all the circumstances. The court adopted the principle stated by Oliver LJ in Re: Bird Precision Bellows Limited [1986] Ch 658. Successive re-enactment had not narrowed that discretion.
3. The May 2014 direction for valuation evidence did not rigidly bind the court to the eventual valuation. It was an interim order intended to assist the court. The expert evidence valued the care home business as an asset, not Invicta or Ms Dawson’s share. The judge was therefore entitled to use the evidence while exercising his wider discretion. Burke v Bayne Services (Edinburgh) [2007] CSIH 14 was not a useful analogy because the circumstances and procedural basis differed.
4. There was no procedural unfairness. The parties had an opportunity to address the valuation evidence and the appropriate remedy. Whether a judge should give a further indication of his provisional thinking before delivering an extempore judgment was a case-specific matter within his discretion.
5. Balance-sheet insolvency did not require the share to be treated as nominally worthless. The acquisition gave Mr Thomas control of the company, access to its income stream and future potential, and the practical ability to enforce Ms Dawson’s judgment debt to the company while avoiding enforcement of his larger debt. The judge was entitled to capitalise Ms Dawson’s former income stream at £25,740 and to take account of the £28,416.83 judgment in fixing the £55,000 price.
6. The order allowing part of the price to be paid to the company in discharge of Ms Dawson’s judgment, together with the release or indemnity provisions concerning guarantees, was upheld.

1. Court of Appeal (Civil Division): Appeal against the order of HHJ Keyser QC dismissed.
2. Chancery Division, Cardiff District Registry: HHJ Keyser QC found unfair prejudice and ordered that Mr Thomas should have an option to purchase Ms Dawson’s share in Invicta Care Homes Limited for £55,000, subject to further terms.