Birdi v Specsavers Optical Group Ltd & Ors

Under Companies Act 2006, conduct of a subsidiary may constitute conduct of the holding company’s affairs where the companies operate as complementary parts of one business. Procedural irregularity alone does not establish unfair prejudice if the same decision would probably have been reached through proper procedures. Directors must exercise powers for proper purposes, act in good faith in the company’s interests, and manage conflicts of interest. A controlling shareholder-director must distinguish its own interests from those of the company and disclose relevant interests. Relief under section 994 is flexible. An adjustment to the price payable for shares may compensate prejudice even where the prejudice has no continuing effect on the company’s value.

The petitioner held half the A shares in Dartford Specsavers Ltd, with Specsavers Optical Group Ltd holding the B shares and controlling the board. The business was operated through Dartford and its wholly owned subsidiary, Dartford Visionplus Ltd, under a shareholders’ agreement and related service agreements.

The petitioner alleged that the respondents had conducted the companies’ affairs in breach of contractual, fiduciary and statutory duties. Six issues concerned the handling of a departing joint venture partner, investigation and suspension costs, staff remuneration, the salary of a replacement partner, disciplinary proceedings, and dividends or other distributions. It was agreed that the petitioner’s shares would be purchased at fair value, subject to any adjustment justified by the breaches established at trial.

1. Scope of section 994. Conduct relating to Visionplus could be considered conduct of Dartford’s affairs because the two companies operated as complementary parts of a single business. The relevant conduct had to be conduct of the company’s affairs, prejudicial to members’ interests, and unfair.
2. Issues 1 to 4 and 5. Some breaches of duty and the shareholders’ agreement were established, including failures to follow board procedures and failures to manage conflicts of interest. However, procedural failures did not themselves amount to unfair prejudice where the evidence showed that the same decision would probably have been made by a properly constituted board. The investigation and disciplinary decisions concerning the petitioner were genuinely believed to be in the company’s interests and were not motivated by an improper plan to remove her. The salary and bonus decisions were likewise not shown to have been improperly motivated.
3. Issue 2. Specsavers acted in breach of its duties by charging Dartford £440 per day for management services which could have been supplied for £200 per day. The decision was made for Specsavers’ own benefit and was unfairly prejudicial. Other possible overcharges were not capable of precise quantification.
4. Issue 6. Specsavers failed properly to investigate whether the petitioner was entitled to an equalisation payment of £8,705.61. That failure breached the agreed basis on which the business was operated and constituted unfair prejudice, although the precise amount due was not established.
5. Relief. The two established matters warranted an adjustment to the share purchase price. The independent valuer was to determine the adjustment required fairly to make good the prejudice. The court declined to determine an unpleaded issue concerning beneficial ownership of dividends after the agreement to sell the shares.

First-instance decision. The judgment itself states no prior appellate decision.