McCallum-Toppin & Anor v Toppin & Ors

The court upheld a petition under s.994 Companies Act 2006 for conduct unfairly prejudicial to the petitioners’ interests, grounded on three findings: excessive directors’ remuneration, failure to form a bona fide view not to pay dividends, and extensive use of directors’ loan accounts that deprived the company of working capital. The judge accepted that the petitioners had proved excessive remuneration in certain years but, because the expert evidence adduced at trial had been excluded, declined to quantify that excess for the years already litigated.

The court ordered a buyout of the petitioners’ shares at a full (100 per cent) valuation without a minority discount, directed that the valuation date be the date of judgment, and provided a procedure to ascertain and, where necessary, quantify remuneration and pension contributions drawn in the period from 2017 to the date of judgment by way of expert determination. The court required certification of the 2017‑to‑judgment remuneration (for example by auditors or officers) and held that the expert’s determination would be final and binding except for fraud, bias or manifest and material error; the expert need not give reasons.

Costs were awarded to the petitioners. The first and second respondents were ordered to pay the petitioners’ costs jointly and severally; the third respondent was ordered to pay only the costs incurred against her (not jointly and severally).

Background and parties: The petitioners, Lucy Jane McCallum-Toppin and Julie Bryan, brought a petition under s.994 Companies Act 2006 against four respondents including two director‑shareholders and the company (AMT Coffee Limited). Following a full trial the judge gave a written liability judgment (reasons handed down 29 January 2019) in which he found unfair prejudice under three main heads: excessive director remuneration, failure properly to consider dividends, and removal of benefit to the estate by directors’ loan accounts. Relief was reserved for subsequent determination.

Relief sought and issues for decision: The court was asked to determine appropriate relief under s.996(1), in particular whether the first and second respondents should be ordered to purchase the petitioners’ shares, how to value those shares (including whether a minority discount should apply and what valuation date to use), and how to quantify the impact of excessive remuneration where expert evidence previously adduced had been excluded. The petitioners sought mechanisms to determine the quantum of excessive remuneration, including an expert determination or a quantum hearing. There were also contested issues about costs and the extent of shared liability between respondents.

Court’s reasoning and conclusions:

• The court reaffirmed the finding of unfair prejudice and concluded that a buyout order was appropriate; in the judge’s view a sale and purchase at an undiscounted valuation was required to do justice given the conduct found.
• Because the petitioners had adduced expert evidence at trial that was excluded, and because they had had the opportunity to litigate quantum for the years up to 2016, the court refused to re-open quantification for those earlier years on the ground that it would be procedurally unfair and amount to a second bite at the cherry. The court distinguished Re Tobian Properties Ltd on its facts (insolvency issues in Tobian) and emphasised that this company was not insolvent.
• The court accepted that it was possible to certify and then determine remuneration and pension contributions for the period 2017 to the date of judgment. It directed certification of those sums (for example by auditors or officers) and, because the sums appeared modest, ordered that the question of excess in relation to that period proceed by an expert determination rather than a further court trial.
• The valuation date for purchase of the petitioners’ shares was fixed as the date of judgment to reflect the usual principle of valuing as close as possible to the sale date (citing Profinance Trust v Gladstone), and the judge declined to adopt the company’s prior accounting date.
• On the form of the expert determination, the court held the determination would be final and binding except for fraud, bias or manifest and material error and declined to require the expert to provide reasons, to reduce the scope for collateral challenges.
• Costs: the petitioners were the successful parties. The first and second respondents were ordered to pay the petitioners’ costs jointly and severally. The third respondent was assessed to be largely unsuccessful but entitled to some credit for conduct and intent to exit; she was ordered to pay only those costs incurred against her.

Procedural posture: This is a first instance Chancery Division judgment disposing of relief after a liability trial; the court exercised its discretion under s.996 Companies Act 2006 to make orders for relief and case management directions for quantification and valuation.

First instance: The petition under s.994 Companies Act 2006 succeeded. The court ordered that the first and second respondents purchase the petitioners’ shares at an undiscounted valuation, fixed the valuation date as the date of judgment, and directed a process to ascertain and, by expert determination, quantify remuneration and pension contributions drawn from 2017 to the date of judgment. The court refused to re‑open quantification for earlier years where expert evidence had been excluded at trial. Costs were awarded to the petitioners; the first and second respondents to pay jointly and severally, the third respondent to pay only costs incurred against her.