Homes of England Ltd v Horsham Holdings Ltd & Ors

The petitioner sought interim injunctive relief under s.994 of the Companies Act 2006 to restrain payment of £500,000 held in a solicitors' client account on the basis that the payment would be unlawful or prejudicial to the petitioner as a 25% shareholder. The court held that each of the petitioner's principal grounds (that the alleged intercompany loan documents were not intended to create binding obligations or were unauthorised, that the loan payment would breach the Horsham Holdings shareholders' agreement (clauses 4.2–4.4), and that the directors proposing the payment were conflicted by personal guarantees) raised serious issues to be tried.

However, balancing the risk of injustice, the judge concluded there was real prejudice to other parties (including risk of enforcement by a lender) if payment were restrained and the petitioner's undertaking in damages was inadequate. The court therefore authorised payment to proceed, but only on condition that specified respondents and certain directors provide indemnities to the petitioner against loss if the payment is later found unlawful. The court refused the petitioner's broader restraint preventing use of the funds for ordinary business debts.

This was a first-instance application by Homes of England Limited (the petitioner), a 25% shareholder in Horsham Holdings Ltd, seeking urgent interim relief in proceedings under s.994 of the Companies Act 2006. The petitioner sought two heads of relief: (i) an interim injunction restraining the respondents from paying £500,000 (then held in a solicitors' client account) to any respondent other than the first respondent; and (ii) a further order preventing the first respondent from disposing of the sum except to the petitioner.

Background and parties: The dispute arose from two residential developments (Horsham and Bedford) carried out through a group of related companies. The petitioner was a 25% shareholder in the two main holding companies; Oxford Property held 50% and Nick Sellman (Holdings) limited 25%. The petitioner alleged wrongful exclusion from management, failure to provide sales details and improper financing arrangements, and sought a buy-out or reverse buy-out under s.994.

Nature of the application: The immediate question concerned a proposed transfer of funds from Horsham Holdings' solicitors' client account to repay an alleged intercompany debt said to be owed by Horsham Holdings to DNG Bedford (3) Ltd, and thence to the Redwood Partnership lender. The petitioner alleged the loan documents were not genuine or authorised, that payment would breach the Horsham shareholders' agreement (clauses 4.2–4.4), and that directors seeking payment were conflicted by personal guarantees.

Issues framed:

• Whether the petitioner had a sufficient case on the merits to justify interlocutory relief (applying the American Cyanamid test to the principal restraint sought).
• If so, how the balance of convenience or least risk of injustice should be resolved.
• Whether the petitioner was debarred from relief for failure of full and frank disclosure on short notice.

Court's reasoning and disposition: The judge held that each of the petitioner's principal objections raised serious issues to be tried: (a) there were peculiar features surrounding the alleged 4 August 2017 loan agreement and undated charge that raised doubt as to their intended legal effect and board authorisation; (b) there was a reasonably arguable breach of clause 4.3 (and related provisions) of the Horsham shareholders' agreement which required written agreement of all shareholders for finance on specified terms; and (c) the directors proposing payment had conflicting personal interests under guarantees, raising a serious fiduciary duty issue. On the balance of convenience, however, restraining payment risked material prejudice to respondents (including likely enforcement action by the Redwood Partnership and consequential loss to other group companies and guarantors), and the petitioner's cross-undertaking in damages was inadequate. The court exercised its power under s.37(2) Senior Courts Act 1981 and CPR 3.1(3) to authorise the payment provided the Fifth, Sixth and Ninth to Twelfth respondents (and certain directors) gave indemnities to the petitioner against loss should payment later be held unlawful. The petitioner's wider restraint preventing use of funds for ordinary business debts was refused.

This was a first-instance application. The application was allowed in part: the court found that the petitioner raised serious issues to be tried (including doubts about the authenticity/authority of a 4 August 2017 loan agreement and charge, arguable breach of clauses 4.2–4.4 of the Horsham shareholders' agreement, and a real conflict of interest by directors), but on the balance of convenience authorised the proposed payment to the lender provided that specified respondents and directors gave indemnities to the petitioner against any loss if the payment is later held unlawful. The petitioner's alternative order restraining all disposal except repayment to the petitioner was refused.