In re Edwardian Group Ltd

The petition under sections 994–996 Companies Act 2006 was partly successful. The judge found that the claimant members had proved serious wrongdoing by the company’s controlling director: undisclosed personal interests in third‑party businesses (Winchfern and Expotel) that gave rise to conflicts of interest and undeclared profits, a flawed and misleading internal investigation into those matters, and an improper pattern of profit distribution by way of director remuneration rather than dividends. The court rejected the petitioners’ primary quasi‑partnership case (that the company had always been a quasi‑partnership binding all shareholders), yet concluded that the director (J.S.) had breached fiduciary duties in relation to Winchfern and Expotel and that the company’s investigation and certain payments were unfairly prejudicial to minority shareholders.

The judge addressed delay by the petitioners and declined to strike the petition out on that basis, while allowing that the delay should be reflected in the valuation date. Because the unfair conduct was systemic and materially affected the minority shareholders, the appropriate remedy was a purchase order for the petitioners’ shares. The judgment sets out the valuation approach (market value plus an apportionment of resulting 'marriage' or control premium) and fixes an adjusted valuation date to take account of culpable delay.

Background and procedural posture

The petition was brought under sections 994–996 Companies Act 2006 by Estera Trust (Jersey) Limited (as trustee) and Herinder Singh, complaining that Edwardian Group Limited's affairs had been conducted in a manner unfairly prejudicial to their interests as members. Primary complaints alleged a family quasi‑partnership understanding, removal of H. Singh as director/employee, breaches of fiduciary duty by J. Singh (chief executive) in respect of corporate opportunities (Winchfern and Expotel), failure of disclosure, a deficient investigation and report by the company, and excessive director remuneration.

Issues for decision

• whether the company was a quasi‑partnership or bound by equitable obligations restricting majority powers;
• whether J. Singh breached fiduciary duties by diverting corporate opportunities, failing to disclose interests and profiting personally;
• whether the company’s subsequent investigation and report were adequate and whether they misled shareholders;
• whether extraordinary director remuneration in 2011–2014 was an improper distribution of profits;
• whether the petitioners’ delay barred relief; and
• what remedy (if any) should be granted.

Reasoning and findings

On the quasi‑partnership issue the court rejected the petitioners’ primary case that the company had, from incorporation or by 1993, the character of a quasi‑partnership binding the trustees and external investors. The judge found only a limited family understanding between J. Singh and H. Singh from circa 1999 (an opportunity to be groomed for senior management), not an enforceable equitable constraint binding the majority trustees or external shareholders.

On fiduciary duties, the court found that the opportunities involving Winchfern (1983) and Expotel/KP (1991 onwards) were matters the company was entitled to know about. J. Singh had interests acquired (and in some cases held via trusts) which he did not properly disclose to the board; the circumstances gave rise to real and continuing conflicts of interest until disclosure in 2008–2015. The court found that the company’s investigation (conducted by two directors) was procedurally unfair, non‑independent, relied on incomplete answers and produced a misleading summary to shareholders.

The court also concluded that in 2011–2014 substantial ‘benefits in kind’ and retrospective bonuses were awarded which in substantial part were a mechanism to distribute profits to the chief executive rather than declare dividends for all shareholders; that course was an improper exercise of the company’s powers.

The petitioners had delayed pursuing a formal petition (in large part because of parallel family litigation). The court concluded that, although the delay was deliberate and tactical, it did not disentitle the petitioners to relief; instead the valuation date for any buy‑out should be adjusted to reflect the delay.

Remedy

The judge determined that the appropriate relief was a share purchase order (sale of petitioners’ holdings) against J. Singh and the company. The judgment sets an adjusted valuation date and instructs valuation experts to compute: (i) market value of the petitioners’ holdings; (ii) value of J. Singh’s holding; and (iii) the value of the combined holding; the price payable will be the petitioners’ market value plus a share (the judge proposed one half) of the marriage/control premium released by the transfer. The judgment also contemplates appropriate notional adjustments to company assets to reflect sums unfairly extracted.

Claim allowed in part. The court found breaches of fiduciary duty by the chief executive (failure to disclose interests in Winchfern and Expotel and resulting conflicts; personal profit taking), a flawed and misleading company investigation and improper distributions by way of director remuneration. The petitioners were not debarred by delay. The appropriate remedy was an order for the company and Jasminder interests (or the company) to buy the petitioners’ shares at a fair price; the court fixed principles for valuation (market value plus a share of the marriage/control premium) and adjusted the valuation date to reflect culpable delay.