Dinglis v Dinglis & Ors

The court delivered a further judgment following its June 2019 decision that the petitioner's unfair prejudice claim succeeded in respect of the Personal Loan and the Maremonte Loans, finding breaches of the director's duty under Companies Act 2006, section 172. The court ordered that the petitioner's 12% shareholding in Dinglis Properties Limited be purchased by the first and/or second respondents at a price to be determined and subject to a minority discount.

The principal issues decided were (i) the appropriate date for valuation (the court fixed the valuation date as the date of the buy‑out order, 25 July 2019); (ii) which of the parties' proposed adjustments to company value could proceed to a valuation trial (the court permitted claims for adjustments reflecting lost opportunities to earn returns above a contractual 3.5% rate and allowed compound interest to be argued as one method of measuring lost investment returns, while rejecting or deferring other asserted adjustments); and (iii) the correct approach to calculating a minority discount (the court confirmed a minority discount is to apply and that the exact level is for the valuation trial, taking account of the particular facts including any special value to the purchaser).

This is a further judgment in unfair prejudice proceedings following the court's June 2019 decision ([2019] EWHC 1664 (Ch)) that parts of the petition were well founded. The petitioner, Paul, holds a 12% minority shareholding in Dinglis Properties Limited (DPL). The earlier judgment found that Andreas had misused DPL's funds (notably by authorising the Personal Loan and the Maremonte Loans on terms which favoured his own interests) and that those acts were unfairly prejudicial to Paul.

The present hearing addressed three principal matters: (i) the date at which Paul's shares should be valued; (ii) which valuation adjustments asserted by the parties should be allowed to proceed to a valuation trial; and (iii) the correct approach to and level of any minority discount to be applied.

• Nature of the claim/application: An unfair prejudice petition under Companies Act 2006, section 994, with the court earlier finding breaches of directors' duties (section 172) and ordering that Paul’s shares be purchased by Andreas and/or MHGL subject to a minority discount.
• Issues framed: the valuation date for the buy‑out; specific adjustments to be made to DPL's value to reflect the respondent's conduct (including lost returns on sums advanced or misapplied, Bank of Cyprus withdrawals made on an incorrect understanding of a guarantee, Schedule 1 Payments, and various inter‑company items); and the method and level of minority discount to reflect the minority status of Paul's holding.
• Court's reasoning: the court adopted the usual starting point that shares should be valued at current value rather than at an early date, but recognised that fairness may sometimes require another date. It rejected proposals to adopt an early valuation date (such as June 2012 or November 2014) because the successful complaints concerned later conduct (principally 2014–2017) and there had been no relevant delay by the petitioner in bringing those complaints. The court therefore fixed the valuation date as the date of the buy‑out order, 25 July 2019. The court permitted adjustments to proceed to trial where they sought to reflect DPL's lost opportunity to earn returns above the 3.5% rates charged on particular advances and recognised that compound interest might be a permissible way of measuring such loss in principle. The court disallowed or deferred certain other adjustments (for example, a proposed deduction for alleged historical overpaid dividends was held insufficiently clear; issues that are the subject of stayed possession proceedings were to remain reserved). The court left the quantum of the minority discount to expert valuation evidence at trial, but confirmed the shares are to be valued on a notional sale to the proposed purchaser (Andreas/MHGL) so that any special purchaser value can be addressed.

The court therefore directed that the valuation trial determine the precise adjustments, the measure of any lost investment return (including whether compound interest is appropriate), and the level of minority discount to achieve a fair buy‑out price.

This is a first‑instance further judgment following an earlier finding of unfair prejudice. The court held that the valuation date for the compulsory buy‑out of the petitioner's 12% shareholding should be the date of the buy‑out order, 25 July 2019. The court ruled that certain valuation adjustments (notably claims to compensate DPL for lost opportunities to earn returns in excess of 3.5% on sums misapplied or advanced, and associated compound interest arguments) may proceed to a valuation trial, while other proposed adjustments were refused or reserved. The court confirmed a minority discount is to apply but left its precise quantum to expert evidence at the valuation trial. The order implements the remedy previously directed in the June Judgment and refines the issues for the valuation hearing.