Goodchild v Taylor & Anor

Unfair prejudice under Companies Act 2006, section 994, must be assessed judicially and on rational, principled grounds. The court must consider the parties’ agreed arrangements, the company-law context, equitable considerations and the conduct of all relevant parties. Breach of directors’ fiduciary or statutory duties will generally support a finding of unfair prejudice, particularly where powers are exercised to protect personal interests rather than the company’s interests. Where the parties’ understanding is that one shareholder will acquire the other’s shares, a purchase order may be appropriate instead of winding up.

The petitioner and first respondent were equal shareholders and directors of a solicitors’ company. Their relationship broke down and they agreed in principle to separate, with the petitioner retaining the company and the first respondent pursuing civil work separately. Important financial terms remained unresolved.

The first respondent nevertheless left, established a competing firm, took staff and client files, sought to transfer work, retained his directorship and used company powers concerning funds, dividends and banking. The petitioner petitioned under section 994 of the Companies Act 2006, seeking an order requiring the first respondent to sell his shares at a fair value. The central issues were whether the conduct was unfairly prejudicial and what relief should be granted.

1. Unfair prejudice established. Section 994 requires a principled assessment of unfairness and prejudice in the context of company law. The court must consider the parties’ agreed terms, equitable considerations and the conduct of both parties. There is no requirement that the petitioner be entirely blameless, but the section does not provide for a general no-fault divorce. The burden remained on the petitioner.
2. The parties had agreed only in principle to separate, divide their areas of work and seek a future buyout. They had not agreed that the first respondent could encourage staff to leave, remove company files, invite clients to transfer, divert work in progress or do those things while remaining a director and shareholder and while financial terms remained unresolved.
3. The first respondent’s conduct amounted to clear breaches of his fiduciary and statutory duties. He exercised his directorial powers to protect his own interests rather than promote the company’s interests, encouraged employees to leave without proper notice, transferred or retained company files, caused client confusion, withdrew company funds and impeded financial arrangements. Those breaches caused unfair prejudice to the petitioner as shareholder.
4. The objection that the complaint concerned personal breaches rather than the conduct of the company’s affairs was rejected. The court relied on In re Tobian Properties Ltd and held that non-compliance with directors’ fiduciary duties will normally indicate unfair prejudice. The unusual form of relief sought did not prevent relief, because the petitioner was the only other shareholder and the parties’ understanding was that he would retain the company.
5. Under section 996, the court had a wide remedial discretion. Winding up was inappropriate. The first respondent was ordered to sell his 50 per cent shareholding to the petitioner at a fair valuation. The court refused to reopen the expert valuation late in the trial, because this would cause disproportionate expense and delay and would be unfair to the petitioner. The purchase price was fixed at £170,500.

Not stated in the judgment. This was a first-instance trial in the High Court (Chancery Division).