Corran v Butters

The petition under s.994 Companies Act 2006 alleging unfairly prejudicial conduct was largely dismissed. The court applied established unfair prejudice principles (including the relevance of any shareholders' agreement and equitable constraints on the exercise of strict legal rights) and examined whether the relationship between the parties had the character of a quasi-partnership. The judge found that the petitioner had been justifiably excluded from the companies because he was an undischarged bankrupt, that most of the post-exclusion complaints were not made out, but that limited breaches of director duty were established.

Key legal points: (1) to succeed under s.994 the petitioner must show conduct of the company affairs that has prejudiced his interests as a member and that the prejudice is unfair; (2) equitable considerations may restrain exercise of strict legal rights; (3) a petitioner’s own misconduct may disentitle him to relief or limit the remedy; (4) duties imposed by CA 2006 on directors (ss.171–175) and the prohibitions in the Company Directors Disqualification Act 1986 on an undischarged bankrupt participating in company management were applied.

Outcome: the petition failed except that the court ordered rectification restoring to Greendealexpress pension contributions totalling £64,000 (payment of £32,000 by each of the two majority shareholders) with interest, as the only proportionate relief for the limited unfair prejudice found.

Background and nature of claim. The petitioner, Mr Colm Corran, presented an unfair prejudice petition under s.994 CA 2006 concerning the conduct of the affairs of Energy Express Limited and its subsidiary Greendealexpress Limited by the first and second respondents, the Butters brothers. The petitioner alleged wrongful exclusion from management, wrongful payments (management charges and pension contributions), improper lease arrangements for the Hall, various benefits conferred on related businesses, wrongful retention of a debenture and failure to wind up the companies.

Procedural posture and issues for decision. First instance trial of liability issues. The court framed and addressed: (i) whether the parties’ relationship amounted to a quasi-partnership and the legal effect of the prior shareholders' agreement and any implied understandings; (ii) whether the petitioner was wrongfully excluded from management in February 2015; (iii) whether subsequent conduct by the majority directors amounted to unfairly prejudicial conduct under s.994 (including payments characterised as management charges and pensions, lease of the Hall, related-party transactions benefitting Haus, Unicom and Express Capital, and retention of a debenture); and (iv) appropriate relief under s.996.

Findings of fact and law. The judge found that: (a) there was an original shareholders' agreement governing Greendealexpress which envisaged active management participation by all four founders and regular meetings, but the agreement did not survive in identical contractual form after the 2014 corporate re-organisation; (b) the business had generated substantial ECO profits, but the Green Deal provider aspect remained tightly regulated; (c) the petitioner had been an undischarged bankrupt and came to know of that status in September 2014, but he did not notify the Butters brothers until November 2014; (d) the Butters brothers sought and obtained legal advice on the implications of an undischarged bankrupt participating in company management and, having given the petitioner time to obtain discharge/annulment, were justified in terminating his central management role in February 2015 when he had not obtained a swift resolution; (e) most of the petitioner's complaints about later conduct were rejected, but the court did find limited breaches of directors' duties (notably unjustified pension payments of £64,000 to the two brothers and limited failures to ensure timely invoicing/charging to related businesses); and (f) the petitioner’s own conduct (failure to disclose bankruptcy before the re-organisation) significantly undermined his position and limited available relief.

Remedy and reasoning. The court exercised its broad s.996 discretion and declined the primary remedy sought (a buy-out of the petitioner’s shareholding) as disproportionate and inappropriate given the petitioner’s concealment of his bankruptcy and the narrow scope of proven prejudice. The only ordered relief was repayment to Greendealexpress of pension contributions totalling £64,000 (i.e. payments of £32,000 by each of the Butters brothers) with interest, restoring the companies to the position they would have been in but for that breach.

First instance: The petition was dismissed save for limited relief. The court held that the petitioner was justifiably excluded from management because he was an undischarged bankrupt and had delayed disclosure; most complaints of post-exclusion unfair prejudice were rejected, although the court did find limited breaches by the majority (notably improper pension contributions). The appropriate and proportionate remedy was to order repayment (with interest) of pension contributions totalling £64,000 to Greendealexpress; the primary remedy of a buy-out was refused as disproportionate.