Weatherley v Weatherley & Ors

This is an unfair prejudice petition brought under section 994 of the Companies Act 2006 by the widow of a deceased director/shareholder in a small family company. The petitioner alleged, among other matters, that the company's 50% interest in its operating property was transferred at an undervalue to the father of the family, that she and her son were excluded from the business in breach of an alleged family understanding, that dividends were withheld and that stock had been understated.

The court applied the established legal principles on unfair prejudice, including the significance of the articles, any collateral agreements or legitimate expectations (see O'Neill v Phillips and related authorities) and the Duomatic principle of informal unanimous assent to corporate acts. The judge preferred contemporaneous and independent third‑party evidence that showed the deceased director, Mark, was the dominant managing director, that he knew of and assented to the 2009 transfer (or in any event acquiesced), and that there was no proven understatement of stock.

The judge also found that the petitioner’s covert recordings and the unauthorised shredding of company documents materially contributed to the breakdown of mutual trust and confidence. Dividends were paid and the company offered to rectify the articles and to facilitate a share purchase. Taking the reality of the position and the low likelihood of repetition, the petition was dismissed.

The dispute concerns Weatherley Fencing Contractors Limited, a small family company owned and run by Ken and June Weatherley and their children. Mark, their son, ran the business day to day and was a 20% shareholder until his death in May 2017. The petitioner, Fiona, was Mark's widow and claimed on his death that she had been unfairly prejudiced as a member and had been unfairly dismissed as an employee.

Nature of the application: an unfair prejudice petition under section 994 Companies Act 2006 seeking relief in respect of several acts or omissions: (i) adoption of new articles and refusal to recognise Fiona as a shareholder; (ii) exclusion of Fiona and her son Aaron from the business contrary to an alleged family understanding; (iii) the 2009 transfer of the company’s 50% interest in the operating property to Ken at £200,000; (iv) alleged non‑payment of dividends; and (v) alleged understatement of stock.

Procedural posture: first instance hearing in the Companies Court (Chancery Division). Evidence included fact witnesses (family and third parties), expert valuation evidence on the property and share valuation, and accountant evidence on company accounts.

Issues framed:

• Who truly controlled the company between 2003–2017 and whether Mark knew of and assented to the 2009 Transfer;
• Whether the Transfer was at an undervalue and/or in breach of directors’ duties;
• Whether stock had been deliberately understated;
• Whether there was a fundamental understanding giving family members an enforceable right to employment or benefits;
• The validity of company resolutions and whether informal unanimous assent (Duomatic) applied;
• Whether the New Articles and refusal to recognise the petitioner as a shareholder constituted ongoing or likely future unfair prejudice; and
• Remedies, including ordering the purchase of the petitioner’s shares or other relief under section 996 CA 2006.

Court’s reasoning and findings: the judge accepted the independent accountants and other third‑party witnesses that Mark was the dominant managing director, closely involved with suppliers, the accountants and corporate governance. The property valuation evidence was considered; the judge preferred the detailed valuation evidence of the respondents’ valuer on market values and on realistic "hope" (development) value. The allegation of stock understatement was not made out on the balance of probabilities and the court accepted evidence that Mark led and approved stock figures.

On the Transfer the judge found, on balance, that the family had always treated the property subject to an oral understanding that Ken could buy the company’s interest and that Mark knew of and assented to the transfer in January 2009, or in any event acquiesced and thereafter approved accounts recording the sale. The court also concluded that the £200,000 consideration was accounted for by a reduction in the director's loan account.

The petitioner’s covert recordings and unauthorised shredding of company documents were held to have materially damaged trust and confidence; they were unjustified and inconsistent with continued employment or membership rights. The New Articles and the issue of registration were remedied during the proceedings (the petitioner was registered and dividends paid) and there was an open offer to revise the articles and to purchase the shares. Given that remedy and the low probability of recurrence, the court refused relief. The petition was dismissed.

The petition is dismissed. The court found on the balance of probabilities that Mark was the dominant manager of the company, that he knew of and assented to (or at least acquiesced in) the 2009 transfer of the company’s 50% interest in the property to Ken, and that there was no proven understatement of stock. The petitioner’s covert recordings and unauthorised shredding of documents materially undermined trust and confidence. Dividends were paid and the petitioner was registered as shareholder; given the remedies available and the low likelihood of repetition, the court declined to make orders under section 996 and dismissed the petition.