Saatchi v Gajjar & Anor

Permission for a statutory derivative claim requires more than a merely prima facie case, but the claimant need not establish a strong case or undergo a mini-trial. The court must make a provisional, fact-sensitive assessment of the merits and apply the factors in section 263 of the Companies Act 2006.

In deciding whether a hypothetical director acting under section 172 would attach importance to continuing the claim, the court may consider the claims’ strength, value, cost, funding, recoverability, effect on the company and availability of alternative remedies. Alternative remedies, including an unfair prejudice petition or just and equitable winding up, are relevant but are not absolute bars. Permission may properly be granted where the claims concern alleged wrongdoing by a director, vest in the company, have sufficient substance, and would not be proportionately resolved through other procedures.

Charles Saatchi, a shareholder of Triptych Logistics Ltd, applied under section 261(1) of the Companies Act 2006 for permission to continue derivative claims vested in the company against its other shareholder and sole director, Rahul Gajjar.

The proposed claims concerned alleged unauthorised loans, self-awarded payroll payments, vehicle purchases, payments connected with a tutoring venture, cricket-club sponsorship, payments to Mr Gajjar’s former wife, and company credit-card expenditure. Mr Gajjar disputed liability and relied on alleged informal shareholder assent, the model articles, alternative remedies, and the breakdown of the relationship between the shareholders.

The court also considered whether the dispute should instead be addressed through an unfair prejudice petition under section 994 of the Act or a just and equitable winding-up under section 122 of the Insolvency Act 1986. The central issue was whether the statutory requirements for permission were satisfied.

1. Permission granted. The court granted permission to continue the derivative claim. The claims were not speculative and disclosed something more than a prima facie case.
2. The statutory scheme has two stages. Section 261 requires a prima facie case at the first stage. At the second stage the court applies section 263. There is no threshold requirement of a strong case, and the court must avoid conducting a mini-trial. Nevertheless, it must form a provisional view of the merits sufficient to apply section 263.
3. Under section 263(2)(a), permission must be refused only where the court is satisfied that no director acting in accordance with section 172 would seek to continue the claim. Under section 263(3)(b), the court asks what importance such a director would attach to continuation. The inquiry is fact-sensitive and commercial. Relevant considerations include the claim’s value and strength, costs, funding, recoverability, disruption, effects on relationships, and the company’s financial position.
4. The alleged loans disclosed more than a prima facie case. Informal unanimous assent requires the relevant shareholders to have full knowledge of the material facts. Mr Saatchi’s alleged general willingness to allow loans did not demonstrate informed assent to the transactions. The cumulative value of the loans was significant.
5. The payroll claim also had substance. A director’s entitlement to remuneration under article 19(5) of the Companies (Model Articles) Regulations 2008 did not make the payments unimpeachable. The relevant question was whether the amount was sustainable and fixed in good faith having regard to the company’s financial position.
6. The vehicle purchases, tutoring payments, payments to Mr Gajjar’s former wife and unexplained credit-card expenditure were sufficiently substantial or concerning to justify continuation. The small cricket-club claim would not, standing alone, warrant permission, but could be considered in the context of the wider claims.
7. Alternative remedies were important but not absolute bars. The proposed claims principally concerned alleged wrongdoing, breach of statutory and fiduciary duties, restitution and damages, rather than the resolution of a shareholder-management dispute. Winding up could transfer control to a liquidator, cause delay and funding difficulties, and produce a convoluted solution. A derivative claim was therefore proportionate.
8. The company would not bear the litigation risk in the ordinary way because Mr Saatchi would fund the proceedings and seek an indemnity only if successful. The claim should, so far as possible, be case-managed with related proceedings.