Brett v Migration Solutions Holdings Ltd & Ors

Section 994 of the Companies Act 2006 may apply where contractual or articles-based rights are used to remove a shareholder from management and trigger a compulsory transfer of shares. The existence of a quasi-partnership is not decisive. The question is whether the parties’ relationship gives rise to equitable constraints on the exercise of strict legal rights.

In an arm’s-length commercial venture, negotiated documents, legal advice and express majority control will generally leave little scope for equitable intervention, absent bad faith or other unconscionable conduct. A reasonable decision to terminate a shareholder-director’s employment and apply an agreed share-transfer mechanism will ordinarily not be unfairly prejudicial. An agreed independent valuation will likewise normally be respected, even if the factual circumstances create valuation uncertainty, unless the uncertainty has been deliberately contrived.

The petitioner held a minority shareholding in Migration Solutions Holdings Ltd and was employed as a director. The company’s articles required a departing employee-shareholder to transfer his shares. A Good Leaver was entitled to a fair-price valuation, while a Bad Leaver received nominal value.

The petitioner was dismissed, removed as a director and treated as a Good Leaver. The auditors valued his shares at £475,000. He presented a petition under section 994 of the Companies Act 2006, alleging that his exclusion, the timing of the dismissal and the absence of a completed long-term lease of the data-centre site caused unfair prejudice. The central issues were whether the relationship attracted equitable constraints and whether the dismissal or valuation process was unfair.

1. Petition dismissed. The majority shareholders were entitled under the employment contract and articles to terminate the petitioner’s employment, remove him as a director and require the transfer of his shares. The contractual sequence did not take the conduct outside section 994: its implementation could still constitute unfair prejudice if the surrounding circumstances made it unfair.
2. The relationship was an arm’s-length commercial venture, not usefully characterised as a quasi-partnership. The petitioner identified an opportunity and negotiated detailed documentation with a private-equity-style investor. He had legal advice, understood the control provisions and accepted the risk that the majority could remove him. The parties’ expectation of a continuing relationship did not amount to a commitment outside the documents. There was therefore little scope for equitable constraints, absent bad faith.
3. Even assuming that fairness considerations applied, the reasons for dismissal were substantial and rational. The board reasonably considered that the petitioner had become disengaged, was absent during an important phase, had a seriously damaged working relationship with another director and had repeatedly expressed a wish to sell his shares. Those matters were capable of justifying both removal as a director and the compulsory transfer of his shares.
4. The absence of an executed 20-year lease did not make the valuation unfair. The lease terms were advanced but not finally documented, and there were unresolved stamp-duty and commercial questions. It would have been artificial either to postpone the dismissal or to assume that the lease had certainly been granted. The auditors’ valuation proceeded under an agreed mechanism, with both sides able to provide material and submissions. There was no evidence of contrived timing or manipulation.
5. Alternative allegations concerning outside interests, expenses and a company-card withdrawal did not alter the result. The evidence did not establish conduct which would independently have justified summary dismissal and Bad Leaver treatment.