Destiny Investments (1993) Ltd & Anor v TH Holdings Ltd & Ors Re TPD Investments Ltd

The unfair prejudice remedy is flexible, but it must be used to remedy proven prejudice rather than to rewrite the parties’ bargain or confer a windfall. In an arm’s-length, fully packaged commercial venture, there was no general obligation to disclose the source or structure of a shareholder’s own funding. Security given over joint venture assets for that funding did not produce unfair prejudice where it was imposed by the lender, caused no loss, and was later discharged. Relief under section 996 of the Companies Act 2006 should reflect the parties’ agreement, the actual prejudice, and the need to avoid over-compensation. Personal liability of directors requires more than involvement in board decisions; the individual must be sufficiently connected with the unfair prejudice for relief against him or her to be just.

The petitioners held minority interests in TPD Investments Ltd, a joint venture formed to acquire and manage hotels. They alleged unfair prejudice arising from the treatment of a £10 million loan, security granted over the hotels, the transfer of the Cardiff Hilton, refinancing, dilution of their shareholdings, and failures to implement agreed arrangements.

Several matters were conceded, including unfair prejudice under section 994 of the Companies Act 2006 and the petitioners’ entitlement to a purchase of their shares at fair value without a minority discount. The remaining issues included the effect of Loan D, whether the petitioners’ notional shareholdings should be increased, the valuation of the shares, the purchase-order terms, and personal liability of two directors.

1. Loan D and concealment. The petitioners knew of the additional borrowing by the end of 2009. The transaction had been negotiated at arm’s length as a fully packaged opportunity. The respondents were entitled to obtain funding for their own equity contribution from whatever source they chose, and no obligation to disclose Loan D was established. The evidence did not support an inference of concealment.
2. Security and fiduciary duty. The security over the hotels was imposed by the Bank because the Bank’s profit share was attached to the unsyndicated facility. The petitioners suffered no loss or prejudice from it, and the security had been discharged. The treatment of Loan D therefore involved no breach of fiduciary duty and caused no unfair prejudice.
3. Remedial discretion. Section 996 of the Companies Act 2006 gives the court a flexible power to remedy unfair prejudice. It does not permit the court to alter the original bargain by retrospectively increasing shareholdings. Such an order would be inconsistent with the parties’ agreement, the treatment previously agreed in the Second Memorandum, and the requirement to avoid an opportunistic transfer of value.
4. Fair value. Fair value required a market-based valuation of the underlying hotel assets. Appropriate selling costs and consequential refinancing fees were to be taken into account because the hotels could not be realised without them. The court preferred the valuation approach which reflected the audited accounts, actual liabilities, and commercial consequences, while rejecting unsupported adjustments that would create a windfall.
5. Purchase order and personal liability. Tonstate and TPD were to have an opportunity to purchase the petitioners’ shares and repay the shareholder loans, with a possible application for an extension. The court declined to grant the petitioners an option over the hotels or a share in future increases in value. Directors’ involvement in the conceded conduct was insufficient, without more, to make them personally liable. The petitioners would receive fair value without a discount, and imposing personal liability would over-compensate them.