UTB LLC v Sheffield United Ltd

Pending an appeal, the court may refuse protective relief which would fetter the management of a company, create uncertainty or encourage satellite litigation. The court should not substitute its business judgment for that of the company’s directors and executives where there is no compelling evidence of likely mismanagement. A general stay of specific performance may also be inappropriate where it would prolong divided ownership and control.

For an unfair-prejudice petition under Companies Act 2006, section 994(1) requires the petitioner to be a shareholder when the petition is presented. An appellant’s later loss of shareholder status following a court-ordered transfer does not prevent an appeal. If the order is reversed and the shares are re-transferred, the former shareholder may complain of unfairly prejudicial conduct occurring during the intervening period.

The court had previously ordered specific performance of a share sale requiring Sheffield United Limited to transfer its shares in Blades Leisure Limited to UTB LLC for £5 million. Consequential relief was adjourned pending any application by Sheffield United for permission to appeal.

Sheffield United sought protection against alleged mismanagement during the appeal period. It sought advance notice of exceptional expenditure carrying a material risk of cash-flow insolvency, a stay of specific performance, or retention of one share so that it could pursue an unfair-prejudice petition. UTB opposed those measures and offered an undertaking concerning dealings with the shares, new share issues and alterations to Blades’ articles.

1. Protective relief. The court refused an order requiring UTB to notify Sheffield United of specified transactions. The proposed terms were uncertain, would risk defensive management and satellite litigation, and could unfairly fetter directors from taking commercially necessary decisions. The court was not in a position to provide better business judgment than Blades’ directors and executives. There was no compelling evidence that UTB would mismanage the club.
2. Stay of specific performance. A general stay was inappropriate. It would prolong divided ownership and control, despite the importance of ending that instability. It was also inappropriate to use a stay as a means of extracting the proposed undertaking.
3. Share retention and appeal standing. Sheffield United did not need to retain one share. Its standing in the Court of Appeal arose from being the unsuccessful party at trial. Under section 994(1) of the Companies Act 2006, the petitioner must be a shareholder when the petition is made; there is no separate requirement to remain a member when the appeal is heard. The Court of Appeal could make any order that the High Court could have made.
4. Future unfair-prejudice claim. If the transfer were reversed on appeal, Sheffield United would again own the shares and could have standing to complain of conduct during the intervening period that had reduced their value. Re Starlight Developers Ltd [2007] EWHC 1660 (Ch); [2007] BCC 929 concerned a different question and did not determine whether a shareholder displaced by a court order later overturned could complain about intervening conduct.
5. There was therefore no stay and no order requiring advance notice of other transactions. UTB’s undertaking not to dispose of or deal in the shares, issue new shares, or alter Blades’ articles so as to diminish the value of Sheffield United’s shares was to be included in the final order.

The judgment followed an earlier High Court judgment ordering specific performance of the share sale. Permission to appeal was refused by the High Court, subject to Sheffield United’s right to apply to the Court of Appeal. This judgment determined consequential protective relief pending any appeal.