Loveridge & Ors v Loveridge

A shareholder who manages and develops a company successfully does not thereby acquire an entrenched right to remain in management contrary to the company’s constitution. An unfair-prejudice petition requires arguable conduct of the company’s affairs which causes unfair prejudice to the petitioner’s interests as a shareholder.

Interim relief must be tailored to the likely final outcomes and the risk of irremediable harm. It may exceptionally transfer control from a majority to a minority, but managerial ability alone cannot justify that course where damages can compensate for any loss.

Businesses conducted through separate companies and partnerships must be analysed under the legal rules governing each entity. Pending the winding up of a partnership, the court should consider its separate character, existing management, ownership interests and likely outcome.

A family operated caravan parks through five companies and three oral partnerships at will. Following an irreconcilable dispute, Michael Loveridge dissolved two partnerships and brought partnership proceedings. He also petitioned under sections 994 and 996 of the Companies Act 2006 and sought just and equitable winding up under section 122(g) of the Insolvency Act 1986.

HHJ McCahill QC made interim orders placing Michael in sole control of all the partnerships and companies. The orders substantially excluded the other family members from their management. Ivy, Alldey and Lesa appealed the partnership order, while Ivy and Alldey appealed the company order.

The central issues were whether Michael had a seriously arguable company-law claim, whether transferring corporate control to him was justified, and how the separate partnerships should be managed pending trial or winding up.

1. Both appeals were allowed. The company order was discharged. The partnership order was discharged and replaced by arrangements placing Ivy and Alldey in charge of Riverside, Michael in charge of Redstone, and Lesa in charge of Oversley Mill.
2. An unfair-prejudice claim required arguable conduct of a company’s affairs which caused unfair prejudice to the petitioner’s interests as a shareholder. The evidence did not support an agreement, understanding or equitable constraint entitling Michael to sole management. Successful and energetic management does not create an entrenched right to office where the constitution permits removal. The proposed claim under sections 994–996 of the Companies Act 2006 was therefore not seriously arguable.
3. Changing accountants in accordance with a company’s constitution did not establish unfair prejudice on the evidence. Nor did the evidence about corporation tax liabilities. The alleged conduct concerning Sales could not justify transferring control of four other companies.
4. Michael had removed £1.25 million from Sales for a personal acquisition despite a fellow director and shareholder’s opposition. A disputed entitlement to partnership money did not entitle him to take company assets. His conduct disclosed a breach of fiduciary duty, for which dishonesty was unnecessary. Removing him as director and seeking recovery could not arguably constitute unfair prejudice.
5. A breakdown in relations between majority and minority shareholders did not, without more, establish a just and equitable ground for winding up. There was no relevant deadlock, and that alternative ground added nothing to the unfair-prejudice petition.
6. Interim relief transferring control from a majority to a minority is legally possible where otherwise irremediable harm cannot be compensated in damages. It must, however, be assessed against the likely final outcomes and duration of the interim period. Here there was no evidence that majority control would cause uncompensable damage, and none of the final relief sought would leave Michael in sole control.
7. The companies and partnerships had to be considered separately. Riverside and Redstone had been dissolved and required management pending winding up. Oversley Mill might continue without Michael if his asserted partnership interest failed. The judge had wrongly assumed unitary control was necessary and had placed excessive weight on Michael’s historic role in expanding the businesses. Separate control reflecting existing management, ownership interests and likely outcomes presented the least disruptive solution.

1. Court of Appeal (Civil Division): In [2020] EWCA Civ 1104, unanimously allowed both appeals, discharged the interim orders below and substituted separate management arrangements for the partnerships.
2. High Court, Business and Property Courts in Birmingham: HHJ McCahill QC placed Michael in sole interim control of the three partnerships and five companies. The judge refused permission to appeal.
3. Permission and stay: Carr LJ granted permission to appeal on 25 June 2020 and subsequently stayed the company injunction pending expedited appeals.