Allnutt v The Nags Head Reading Ltd & Ors

In a quasi-partnership company, exclusion of a member will not ordinarily be unfairly prejudicial where the member’s continuing directorship involves a serious, ongoing and undisclosed conflict of interest. A director seeking authorisation, consent or acquiescence to a potential conflict must provide full and open information about the nature and extent of the interest and the relevant transaction. General awareness of an opportunity, limited discussion, or an unresolved expression of support is insufficient. Consent cannot ordinarily be inferred from silence unless the shareholders knew consent was required or it would be unconscionable to remain silent. The court may use section 1157 as a check on unfairness, but relief is inappropriate where the director has not acted reasonably or made proper disclosure.

The claimant and the individual defendants were shareholders and directors of a company operating a public house. Their relationship was accepted to be a quasi-partnership. The claimant acquired an interest in a nearby competing public house, the Butler, without giving the other participants full information about the investment, its operation or its business plans.

After a disputed meeting in August 2014, the claimant remained a director. The employment aspect of his complaint had already been determined by the Employment Tribunal and was no longer pursued. The issue was whether removal was unfairly prejudicial under section 994 of the Companies Act 2006, including whether the conflict had been authorised, consented to or acquiesced in.

1. Claim dismissed. The claimant’s acquisition and continued involvement in the nearby Butler was in manifest conflict with his duties as director. The competing business presented a genuine risk of diverting customers and trade, particularly given the proximity of the premises, the similarity of the offerings and the Company’s narrow profit margins.
2. Under section 175 of the Companies Act 2006, a conflict may be authorised only where the statutory requirements are satisfied. Regulation 85 of the Company’s articles was wide enough to address a conflict of interest. In either case, the director had to provide full and complete disclosure sufficient to show the nature and extent of the interest and the relevant arrangements.
3. The same requirement applied to reliance on the Duomatic principle, express consent or acquiescence. Knowledge of a possible purchase followed by disclosure that the transaction had fallen through did not amount to informed approval of the later acquisition. The August 2014 meeting involved limited information, a heated and confused discussion, and no approval.
4. The principles stated in Sharma v Sharma concerning knowledge of relevant facts and the limited circumstances in which assent may be inferred from silence were consistent with this analysis.
5. The conflict remained serious, ongoing and unexplained when the claimant was removed. His removal was justified, and any prejudice caused by it was not unfair for section 994 purposes. Section 1157 could operate as a check on unfairness, but the claimant had not behaved reasonably or remedied the lack of disclosure. It was unnecessary to decide whether his reduced work or absences abroad independently justified removal.