Berlin HYP AG v Lumineau & Ors

The court granted an interim injunction restraining the proposed issue of new shares and loan notes (the Issue) and associated data-room activity because there was a clear arguable breach of the Shareholders Agreement and the company’s articles. The court applied the American Cyanamid approach, finding a serious issue to be tried: the Issue offended both the Articles (quorum and ad hominem director requirement) and the reserved matters in Schedule 4 of the Shareholders Agreement which required the Applicant's written consent. The court found that the prejudice to the Applicant would be irreparable because the Issue would irreversibly alter shareholder and creditor composition and that there was no identifiable disproportionate prejudice to the company or the respondents. In addition, the court directed that the company’s filed accounts be removed from the register under section 1096 of the Companies Act 2006 unless the company satisfied the court within seven days, because the filed accounts were materially inaccurate in recording a director's approval and there were substantive concerns raised about those accounts. Costs were awarded against the first and second respondents, summary assessed at 45,000, payable within 14 days.

Background and parties. The Applicant, Berlin Hyp AG, is a minority shareholder in Brickvest Limited. The first and second respondents, Mr Lumineau and Mr Schneider, are founder shareholders and, for these proceedings, were treated as controlling Brickvest's actions. The Applicant relied upon protections in Brickvest's articles and a Shareholders Agreement including reserved matters in Schedule 4 that require the Applicant's written consent to certain capital and financing actions.

Nature of the application. The Applicant issued a petition under section 994 of the Companies Act 2006 for unfair prejudice and sought an interim injunction to restrain Brickvest from effecting a proposed issue of shares and loan notes and from operating an associated data room. The Applicant also sought corrective relief in relation to Brickvest's filed accounts.

Issues framed. The court identified the principal issues as: (i) whether there was a serious issue to be tried that the proposed Issue breached the Articles (quorum and specified director attendance) and the Shareholders Agreement (reserved matters requiring written consent); (ii) whether damages would be an adequate remedy or whether irreparable harm justified injunctive relief; (iii) whether any prejudice to Brickvest or the respondents outweighed the Applicant's prejudice; and (iv) whether Brickvest's filed accounts were materially inaccurate and should be removed from the register under section 1096.

Reasoning and findings. Applying the American Cyanamid test, the court held there was a serious issue to be tried because the minutes and other evidence showed apparent and clear breaches of the Shareholders Agreement and the Articles. The court found that the Issue would cause irreversible prejudice to the Applicant by altering the company's capital and creditor structure and could not be compensated by damages. There was no evidential showing of comparable prejudice to Brickvest or the respondents should an injunction be granted; respondents had not attended to advance such evidence. An offer by the respondents fell short of addressing the Applicant's concerns. Accordingly the balance of convenience favoured injunctive relief. Separately, the court found the filed accounts to be materially inaccurate as they recorded the Applicant's nominee director's approval when, on the minutes, he had abstained (and would have voted against) because of substantive concerns. The court therefore ordered removal of the accounts from the Companies Register under section 1096 unless the company satisfied the court within seven days that the accounts could properly remain.

Procedure and costs. The court treated the hearing as inter partes (the respondents had notice but did not attend) and awarded costs against the first and second respondents, summarily assessed at 45,000 to be paid within 14 days.

First instance: The court granted the interim injunction sought by the Applicant restraining Brickvest from proceeding with the proposed issue of new shares and loan notes and from operating the associated data room, on the basis that there was a serious issue to be tried arising from breaches of the Shareholders Agreement and the company’s articles and that the Applicant would suffer irreparable prejudice if the Issue proceeded. The court also ordered that the company’s filed accounts be removed from the Register under section 1096 of the Companies Act 2006 unless Brickvest satisfied the court within seven days that the accounts may properly remain. Costs were awarded against the first and second respondents, summarily assessed at 45,000, payable within 14 days.