Signia Wealth Ltd v Duariac-Stoebe

The court determined disputes arising from the compulsory transfer procedure in Signia’s articles (Articles 6.21–6.25 and 6.23–6.24) following the transfer of shares held on trust for the claimant-manager, Ms Nathalie Dauriac. Key rulings were that the manager was a "Leaver" within the Articles, that she was a "Bad Leaver" (not a Good Leaver), and that the compulsory transfer process had not been properly followed so that the court must determine Fair Value. The court found that certain expense claims made by the manager were not within the contractual reimbursement provision and in many instances were knowingly mis‑described; it held that Signia had acted in repudiatory breach of the manager’s service agreement by imposing onerous conditions as the price to remain, and that the manager accepted that repudiation (constructive dismissal).

On valuation the court preferred an EBITDA (normalised) approach to an AUM multiple, adjusted for the company’s actual debt, the shareholder structure and contractual exit rules in the Articles. Applying those adjustments the court fixed the Fair Value of the manager’s shares as at 21 January 2015 and awarded damages accordingly.

This was a first‑instance trial of cross‑claims about a compulsory transfer of shares under the articles of Signia Wealth Ltd ("Signia"), and related employment and tort claims brought by and against the former chief executive, Ms Nathalie Dauriac. Signia sought declarations that the compulsory transfer process under Articles 6.21–6.25 had been validly carried out and that the value attributed under that process was binding. The manager and her trustee defended and counterclaimed, asserting breach of contract, conspiracy and tort and contending the transfer was procured by improper conduct.

Nature of the application/relief sought:

• Declarations about validity and effect of the compulsory transfer of the "Dauriac Shares";
• Determination of the price to be attributed under Article 6.24 (the "Prescribed Price" / "Fair Value") or damages for any failure to comply with the Articles;
• Employment and related claims (constructive dismissal, breach of trust and confidence and related tort claims) made by Ms Dauriac.

Issues before the court:

• Whether Ms Dauriac was a Leaver and, if so, whether she was a Good Leaver or a Bad Leaver under Article 6.24;
• Whether the compulsory transfer procedure had been correctly followed and, if not, whether the court should determine Fair Value;
• Whether Signia’s investigation of the manager’s expenses was legitimate or a pretext and whether the employer’s conduct repudiated the service agreement (constructive dismissal);
• Valuation methodology to determine "Fair Value" (issues included whether to use AUM or EBITDA approaches, how to normalise 2014 results, and how to treat net debt, preference shares and the Articles’ exit allocation rules).

Court’s reasoning (concise):

• On the Leaver question the Articles applied to the original holder (the manager) even though the shares were held in trust; the manager became a Leaver by her acceptance of repudiatory conduct on 21 January 2015 and, given the findings on her conduct, she fell within the Bad Leaver category;
• The court examined the expenses inquiry in detail. It accepted evidence that a number of expense claims were improperly recorded and that some key descriptions had been deliberately altered or deleted to conceal the nature of the claims. The court found the manager’s oral explanations unreliable and concluded she had knowingly caused or permitted improper claims and subsequent changes to records;
• As to the employment relationship, the court found on the facts that Signia had sought to impose unduly onerous conditions (including a pre-prepared statement of culpability and a requirement to underwrite losses) as a condition for the manager to remain; that conduct repudiated the service agreement and Ms Dauriac accepted the repudiation (constructive dismissal);
• Because the Articles’ compulsory transfer mechanism had not been properly operated (the Board/Investor valuation step was not effective and the Leaver objected), the court carried out the Fair Value assessment itself. The court preferred a normalised EBITDA/multiple approach to valuation with careful adjustments (including adjustments for pricing of the founder’s AUM, hedge‑fund income run‑rate, third‑party growth and deduction of net debt). The Articles’ restrictions on taking account of majority/minority status were applied, and the Articles’ exit allocation rules were treated as a material factor reducing the value of B/C shares relative to A shares.

The court therefore determined Fair Value for the Dauriac Shares as at 21 January 2015 and quantified the sums payable under the Articles (with calculations set out in the judgment). The court also excluded the adduced "similar fact" evidence from Pure Jatomi as not probative of a common scheme to dismiss employees before bonuses crystallised.

This was a first instance determination. The court found that the compulsory transfer process in the articles had not been properly executed and that Fair Value therefore had to be determined by the court. The court found that Ms Dauriac became a Leaver on 21 January 2015 and that she was a Bad Leaver. The court concluded that Signia’s investigatory process had uncovered improper expense claims and that Ms Dauriac had behaved dishonestly in relation to certain expense claims. The court also held that Signia’s conduct in seeking to impose onerous terms on the manager was repudiatory and that she accepted that repudiation (constructive dismissal). The court therefore determined Fair Value for the Dauriac Shares (applying a normalised EBITDA approach, deducting net debt and accounting for the Articles’ exit allocations) and awarded damages based on that Fair Value.