Goodchild v Taylor & Anor

The petitioner brought a petition under section 994 of the Companies Act 2006 alleging that the company’s affairs were being conducted in a manner unfairly prejudicial to his interests as a 50% shareholder. The petitioner sought relief under section 996(2)(e) that he be ordered to purchase the first respondent’s shares at a fair value.

The court found that, although the partners had agreed in principle to a split of the practice, there was no agreement that the first respondent could depart while remaining a director and shareholder and divert staff, files and clients to a new competing firm. The first respondent remained a director to protect his own position, removed company files, encouraged staff to join his new firm, drew funds from the company after leaving and exercised vetoes (for example refusing overdraft renewal and blocking dividend approvals) to safeguard his personal position. Those acts amounted to breaches of fiduciary and statutory duties and constituted unfair prejudice to the petitioner under section 994.

The court declined to order a winding up and instead exercised its discretion under section 996 to order that the petitioner purchase the first respondent’s 50% shareholding. The court adopted the joint expert’s valuations and, as a pragmatic solution, ordered a purchase price reflecting a split-the-difference approach (£170,500 for the 50% holding). The court refused a late application to reopen valuation issues about treatment of directors’ loan accounts, saying that those matters required separate consideration.

Background and parties. Taylor Goodchild Limited, a solicitors' practice incorporated in 2011, had two equal shareholders and directors: the petitioner (Mr Lee Goodchild) and the first respondent (Mr Scott Taylor). Relations deteriorated in 2016–2017 and the parties sought an amicable split. The petitioner issued a petition under section 994 alleging unfair prejudice and asked under section 996(2)(e) for an order that he purchase the first respondent’s 50% shareholding at fair value.

Nature of the application. (i) The petitioner sought a purchase order under section 996(2)(e). (ii) Key issues framed by the court included: whether the company’s affairs were being conducted in a manner unfairly prejudicial to the petitioner; whether the petitioner had consented to the first respondent’s departure and related conduct; whether the first respondent’s conduct amounted to breaches of fiduciary/statutory duties; and how the respondent’s shares should be valued and how directors’ loan accounts should be treated. (iii) As an alternative, winding up was raised but not pressed.

Facts and procedural posture. The parties had agreed in principle to separate their practices (petitioner to retain crime, respondent to take civil/private work), but had not finalised financial or practical terms. The first respondent formed a new firm, encouraged staff to leave without honouring notice/post-termination restrictions, removed company files and invited clients to transfer. He remained a director and shareholder, used his director status to withdraw funds and to veto bank arrangements and accounts, and resisted signing accounts absent a dividend that would write off his director’s loan. The parties jointly instructed a single valuation expert who produced a continuing and an exiting valuation. The petitioner offered to buy the shares at a fair value; agreement as to valuation and treatment of the directors' loan account was not reached, and the matter proceeded to trial.

Court’s reasoning and findings. The court found (i) the parties’ agreements were at the level of principle only and did not authorise the conduct complained of (removal of files, poaching staff, diverting clients, drawing funds, remaining a director to protect personal interests); (ii) the first respondent’s conduct after and before leaving amounted to clear breaches of fiduciary and statutory duties (including duties to act in the company’s best interests and to avoid conflicts); (iii) those breaches amounted to unfair prejudice under section 994; (iv) the petitioner’s conduct did not negate the unfairness; (v) the court had discretion under section 996 and a buyout order was appropriate and consistent with the parties’ earlier expectation that the petitioner would likely retain the company.

Remedy and valuation. The court declined to wind up the company and ordered that the petitioner purchase the first respondent’s 50% holding. The court accepted the joint expert’s report but rejected a late application to reopen valuation issues relating to the directors’ loan accounts. Adopting a pragmatic approach between the expert’s continuing and exiting valuations, the judge fixed a purchase price of £170,500 for the 50% shareholding. The court left the precise resolution of the director’s loan account treatment to be addressed separately if necessary.

The petition under section 994 was upheld. The court found that the first respondent’s conduct amounted to unfairly prejudicial conduct by breaching fiduciary and statutory duties (remaining a director while diverting staff, files and clients and withdrawing funds). The court exercised its discretion under section 996(2)(e) and ordered that the petitioner purchase the first respondent’s 50% shareholding at a fair value, fixing a pragmatic purchase price of £170,500 for the 50% holding. The court refused to wind up the company and declined a late challenge to the expert’s valuation on directors’ loan account treatment, leaving that issue for separate consideration if required.