Michel v Michel & Ors

For a petition under Companies Act 2006, section 994, unfairness is assessed in the context of the company’s constitution, enforceable agreements and any equitable considerations arising from the relationship between the members. A family-owned company is not necessarily a quasi-partnership. The petitioner must establish the relevant relationship, any legitimate expectation or agreement relied upon, and prejudice in the petitioner’s capacity as a member. A shareholder has no equitable expectation of continuing as a director merely because the company is family-owned. Conduct in accordance with the articles will ordinarily be fair unless special circumstances make reliance on them inequitable. The court has a broad discretion as to relief, but a petition fails where the alleged agreement, quasi-partnership and prejudice are not proved.

Andrew Michel presented a petition under section 994 of the Companies Act 2006 concerning L Kahn Manufacturing Company Ltd. He alleged that the company’s affairs had been conducted in a manner unfairly prejudicial to him, principally by removing him as a director in 2015, excluding him from management and withholding financial information. He also alleged mismanagement, improper treatment of a Chinese subsidiary and misleading use of an HSBC loan.

Andrew sought a purchase of his shares at a non-discounted value or, alternatively, a winding-up order. The respondents denied unfair prejudice and disputed the existence and terms of an alleged 2005 agreement. The central issues were whether the company was a quasi-partnership, whether the alleged agreement existed, and whether Andrew’s removal was unfair and prejudicial.

1. Petition dismissed. Andrew failed to prove that the company was a quasi-partnership, that he had an equitable expectation of remaining a director while holding shares, or that the alleged 2005 agreement existed in the pleaded terms.
2. The court must examine the relationship between the shareholders, including the articles, express agreements, the parties’ conduct, and any agreement, understanding or established acquiescence which may qualify strict legal rights. A family history, family ownership and benefits given to relatives are relevant but do not, without more, create equitable constraints.
3. The evidence showed that directorship was governed by the articles and corporate voting. The shareholders had not treated directorship as a right attached to share ownership. Their dealings were marked by disagreement, distrust and negotiated departures. The discounted purchase of Aubrey’s shares was an indicator against quasi-partnership status.
4. Andrew did not establish the alleged agreement that he would remain responsible for finance, receive regular information, attend monthly meetings or remain a director while a shareholder. The evidence established only that he would cease attending work and participating in day-to-day management in January 2006. A separate agreement in February 2008 provided for continued financial benefits until age 65, and that agreement was honoured.
5. Removal in accordance with the company’s constitution was therefore neither unfair nor prejudicial. The complaints concerning CKC and the HSBC loan were also unproved and did not establish prejudice in Andrew’s capacity as a member. The petition was ordered to stand dismissed.