Pinfold v Ansell & Ors

In a quasi-partnership company, unfair prejudice is assessed by examining the parties’ overall arrangements and equitable understandings, rather than applying rigid conditions. An expectation of management participation may survive a shareholder’s decision to withdraw from day-to-day work. Excluding that shareholder from the board and withholding information can therefore be unfair, even where the majority retains ultimate control.

Managerial disagreement alone will usually not amount to unfair prejudice. Where exclusion locks the petitioner into a company whose strategy has substantially changed, fairness may require valuation at the date of exclusion rather than at the date of the order. The court may order a non-discounted purchase of the minority shares.

Keith Pinfold, a 49% shareholder and director of Foundry Miniatures Ltd, petitioned under section 994 of the Companies Act 2006. He alleged that the company had been operated as a quasi-partnership, that he had been excluded from management and removed as a director, and that the company’s affairs had thereafter been conducted unfairly prejudicially to his interests.

The respondents denied any quasi-partnership arrangement and disputed the alleged prejudice. They nevertheless sought to purchase Mr Pinfold’s shares. The central issues were whether equitable obligations arose from the parties’ relationship, whether the exclusion and subsequent conduct were unfairly prejudicial, and, if so, the appropriate terms and valuation date for the purchase.

1. Petition well founded and relief. The company was operated on the basis of a personal relationship, mutual confidence and an understanding that the principal shareholders would participate in management. These matters were indicators of equitable considerations, not mandatory conditions. The association was therefore a quasi-partnership in the relevant sense.
2. Mr Pinfold’s wish to withdraw from hands-on management did not forfeit his continuing expectation of participation as a director. The arrangements required flexibility as circumstances changed. The respondents acted unfairly by replacing his proposed succession arrangements with direct family control, removing him as a director and refusing him financial and management information.
3. The appropriate conclusion was that the association should be dissolved. The respondents were ordered to purchase Mr Pinfold’s shares without a minority discount. The price was assessed by reference to 50% of the company’s whole value, because the parties had agreed that sale proceeds would be shared equally despite the 49% shareholding.
4. The court declined to treat the respondents’ commercial disagreements and changed sales strategy as unfairly prejudicial mismanagement. Serious mismanagement may qualify in an appropriate case, but the complaints here concerned competing commercial judgments rather than neglect of basic management responsibilities.
5. Fairness required valuation at 30 June 2012, the date of Mr Pinfold’s expulsion. The later strategy represented a substantial change in the conduct of the business and would otherwise have given the respondents, who were responsible for the unfair exclusion, the benefit of a depressed value and any later upside. The resulting purchase price was £309,000. No additional allowance for interest was made.