McCallum-Toppin & Anor v McCallum-Toppin & Ors

In an unfair-prejudice petition, directors’ remuneration is ordinarily a commercial matter for the board. Where remuneration is unauthorised by the constitution and is challenged under section 994, the directors must establish by objective commercial criteria that it was appropriate. The court may determine appropriateness without expert evidence.

A failure to pay dividends is not by itself unfair prejudice. It may become so where directors fail in good faith to consider dividends while paying themselves excessive remuneration or using company funds for personal purposes. Consent given before a shareholder’s death does not necessarily govern later conduct. Mere knowledge or delay does not amount to acquiescence without consent, representation, reliance and detriment. A buy-out at an undiscounted value may be ordered where a discount would reward the respondents’ wrongdoing.

The petitioners, trustees and personal representatives of Angus McCallum-Toppin’s estate, petitioned under section 994 of the Companies Act 2006 in relation to AMT Coffee Limited. They alleged excessive remuneration paid to the respondent directors, failure to consider dividends, and extensive interest-free and unsecured directors’ loan accounts.

The respondents disputed the merits and relied on standing, consent, acquiescence, the non-registration of the estate’s shares, prior settlements and the petitioners’ conduct. The central issues were whether the conduct was unfairly prejudicial and, if so, what remedy and valuation basis should be ordered.

1. Unfair prejudice. The petition was well founded. Excessive remuneration, failure to make a bona fide decision whether to declare dividends, and directors’ loan accounts maintained on a large and unsecured basis amounted to conduct unfairly prejudicial to the petitioners.
2. Remuneration. Remuneration was not authorised under the Company’s articles or by unanimous shareholder consent. Applying Irvine v Irvine (No 1) [2007] 1 BCLC 149, the respondents bore the burden of showing, by objective commercial criteria, that the sums were appropriate. The court could make that evaluation from the factual evidence without expert evidence. The remuneration paid to the directors was excessive in the years identified by the court.
3. Expert evidence. The expert reports were excluded under CPR rule 35.1 because their data and methodology were unreliable or insufficiently relevant. Expert evidence was not reasonably required to resolve the remuneration issue.
4. Dividends. The absence of dividends does not alone establish unfair prejudice. Directors retain commercial discretion, but must genuinely and in good faith consider whether dividends should be declared. The directors had not made such a decision. Their conduct was particularly prejudicial because they paid substantial sums to themselves while leaving a major shareholder outside the management of the Company.
5. Loan accounts. The interest-free and unsecured loan accounts exposed the Company to substantial credit risk, deprived it of the use of its money and caused adverse tax consequences. They were unauthorised and involved breaches of sections 171, 172, 174 and 197 of the Companies Act 2006.
6. Consent and acquiescence. Angus’s consent during his lifetime did not validate later conduct after his death. Allan’s acts were performed as director or beneficial shareholder, not as personal representative. Lucy’s knowledge and delay did not establish consent or equitable estoppel. Acquiescence required more than mere silence or knowledge.
7. Duomatic principle. The principle could not assist the respondents. Anna had not authorised the relevant conduct, and conduct benefiting directors while damaging the Company could not be validated by shareholder consent in disregard of the Company’s interests.
8. Remedy. A share purchase order was appropriate. The estate’s shares were to be bought by Alistair and Allan, rather than by the Company. In the circumstances, the fair value was to be assessed without a minority discount, subject to further directions and information concerning the Company’s affairs.

First-instance decision. The judgment records earlier procedural orders concerning the petitioners’ standing, including [2018] EWHC 1562 (Ch) , but no appeal from that decision was stated.