Weatherley v Weatherley & Ors

Unfair prejudice under Companies Act 2006 is assessed against the company’s articles, agreements and the equitable understandings arising from the parties’ relationship. In a small family company, an understanding that family members will be given an opportunity to work does not ordinarily create a guaranteed right to employment. Informal unanimous assent may validate a company transaction where all relevant shareholders have full knowledge of the material facts and assent by agreement or conduct. Relief for past unfair prejudice requires a realistic prospect that the complained-of conduct will recur or remain capable of recurrence. Where the prejudice has been remedied and the risk of repetition is minimal, relief is not warranted.

Fiona Weatherley petitioned under Part 10 of the Companies Act 2006 in relation to Weatherley Fencing Contractors Limited, a small family company. She alleged that the respondents had unfairly prejudiced her by transferring company property to Ken Weatherley at an undervalue, excluding her and her son from the business, failing to recognise her inheritance of shares, failing to pay dividends, and understating stock.

By trial, Fiona had been registered as shareholder, dividends had been paid, and the company had offered to amend its articles and employ her son part-time. The remaining issues principally concerned the validity and fairness of the property transfer, the alleged family understanding, exclusion from employment, and the likelihood of future unfair prejudice.

1. Petition dismissed. The property transfer did not constitute unfair prejudice. The company had acquired its interest subject to an informal family arrangement under which Ken could acquire it for £200,000. The court found that Mark, June and Debbie had given informed assent before the transfer and, alternatively, that the transaction had been ratified by subsequent conduct.
2. The informal unanimous assent principle permits statutory formalities for a members’ resolution to be dispensed with where all shareholders entitled to vote, with full knowledge of the material facts, assent to the transaction. Knowledge of the transaction alone is insufficient. Here, the evidence established prior discussion, approval and later acquiescence.
3. The transfer was not unfair when assessed against the parties’ common understanding of how the family company was operated. The alleged breaches of directors’ duties under sections 171, 172, 174 and 175 of the Companies Act 2006 therefore failed.
4. The company was operated on the basis that family members would be given an opportunity to work, subject to commitment, competence and hard work. That understanding did not guarantee employment to every family member. Fiona’s role as Mark’s assistant and personal assistant was not sustainable after his death. Her covert recordings and unauthorised shredding of company documents materially destroyed the relationship of trust and confidence.
5. The introduction of new articles intended to prevent Fiona from inheriting Mark’s shares was unfairly prejudicial when undertaken. However, Fiona was later registered as shareholder, received the dividends due, and was offered protection through amended articles. Applying Re Legal Costs Negotiators Ltd, the court found no realistic likelihood that the complained-of conduct would recur. Relief was therefore unnecessary.