Re Profile Partners Limited; Gott v Hague

The court granted interim injunctive relief in proceedings brought under s.994 of the Companies Act 2006 to restrain respondents from using company funds to defend or otherwise further the shareholder dispute. The judge relied on two principal bases: (i) the contractual undertakings dated 21 June 2019 given by the individual respondents not to use PP Group funds to defend the petition or to transfer monies to their own accounts, and (ii) the established company law principle that a company’s money should not be expended to fund disputes between shareholders. The court found a serious issue to be tried as to whether (a) the corporate respondents are merely nominal and acting to advance the interests of the majority shareholders, (b) no satisfactory apportionment of costs had been demonstrated between company counterclaims and the majority shareholders’ defence, and (c) the Consultancy Deed and related invoices of 2 March 2020 raised a serious issue as to misuse of corporate funds. Applying the American Cyanamid criteria, the judge concluded that damages would not be an adequate remedy and that the balance of convenience and preservation of the status quo favoured injunctive relief.

Background and parties: Mr Michael Gott (petitioner), a minority shareholder (approximately 15%) in Profile Partners Limited (the Company), presented a s.994 petition alleging unfair prejudice and breaches of duty by the majority beneficial owner, Mr Rune Hauge, and associated parties. The respondent group included individual respondents, nominee companies and subsidiaries (the Fifth to Eighth Respondents) who operated the PP Group’s business.

Nature of application: The petitioner sought interim injunctions to restrain (i) the individual respondents from using PP Group funds to defend the unfair prejudice petition or from causing payments from group accounts to their own accounts without notice; (ii) the Fifth to Eighth Respondents from incurring expenditure on legal or other professional services for the purposes of the petition and counterclaims; and (iii) the payment of two specific invoices dated 2 March 2020 purportedly owed to Mr Hauge pursuant to a Consultancy Deed.

Procedural posture: The application followed service of a Defence and Counterclaim and correspondence of March 2020 in which the respondents contended that the 21 June 2019 contractual undertakings no longer applied. An earlier interim hearing before ICC Judge Burton resulted in an injunction pending return date; this hearing determined continuation of injunctive relief.

Issues framed:

• Whether the 21 June 2019 contractual undertakings barred the use of PP Group funds to defend the petition or to make payments to the individual respondents.
• Whether the corporate respondents may properly expend their funds in defending the petition and prosecuting counterclaims, or whether such use would constitute a misuse of corporate funds in breach of company law principle.
• Whether the Consultancy Deed and the invoices dated 2 March 2020 raised a serious issue of misuse of corporate funds.
• Whether damages would be an adequate remedy and, applying American Cyanamid, where the balance of convenience lay.

Decision and reasoning: The judge accepted that the contractual undertakings were intended to protect and preserve company assets and to prevent the majority shareholders obtaining an unfair litigation advantage by using company funds. He rejected the respondents’ attempt to draw a practical distinction between costs genuinely incurred by the corporate respondents and costs attributable to the individual respondents’ defence, noting the absence of any satisfactory apportionment and the inextricable overlap of allegations across the Defence, Counterclaim and a subsequently issued German claim. The court treated the Fifth to Eighth Respondents as, at best, nominal and concluded there was a strong inference the counterclaims were brought in response to the petition. The Consultancy Deed and invoices gave rise to a serious issue to be tried as to entitlement and potential misapplication of company funds. Damages would not be an adequate remedy for the petitioner (risk of unfair litigation advantage and possible diminution of assets available to satisfy a buy-out order) and the respondents had not demonstrated irreparable prejudice that could not be compensated by the petitioner's cross-undertaking. Applying American Cyanamid and preserving the status quo, the judge concluded injunctive relief was appropriate.

The court ordered that the petitioner was entitled to the injunctive relief claimed and directed that parties be heard on the precise wording of the order, directions and costs if they could not be agreed.

Application granted. The court granted interim injunctive relief restraining the respondents from causing or permitting the Fifth to Eighth Respondents to incur expenditure on legal or professional services for the purposes of the s.994 petition, the respondents’ counterclaims or related aspects of the shareholder dispute, and restrained payment of the disputed invoices pending further order. Rationale: the contractual undertakings and the company law principle that company funds must not be used to fund shareholder disputes gave rise to a serious issue to be tried; costs had not been satisfactorily apportioned; damages would not be an adequate remedy; and the balance of convenience favoured preserving the status quo (American Cyanamid applied).