Williams v Williams & Ors

The petitioner brought a petition under section 994 of the Companies Act 2006 alleging that the first and second respondents had conducted the affairs of Rhys Williams (Bangor) Limited in a manner unfairly prejudicial to his interests as a member. The court applied the established unfair prejudice principles (notably O'Neill v Phillips) and considered whether transfers of two significant freehold farm properties and a transfer of monies had been carried out with authority or in breach of directors' duties.

The judge found that the transfers of Plas Llanfaglan and Tyddyn Alys from the Company to Williams Caernarfon Limited were effected unilaterally by the respondents, without the petitioner’s knowledge or authorisation, in breach of duty and therefore unfairly prejudicial to the petitioner as a member. The court found that the £95,000 transfer of company funds in April 2013 was part of the practical interim division of the farming business agreed at meetings and that the petitioner knew of it, so that that particular transfer was not unfairly prejudicial. The judgment considered potential tax consequences, directors’ duties (including duties under Part 10 of the Companies Act 2006, sections 171, 172, 173 and 174), and whether delay barred relief, and concluded relief should not be refused for delay.

Background and parties: The petitioner Ifan Rhys Williams and respondents Emrys and Dewi Rhys Williams are brothers and shareholders/directors of Rhys Williams (Bangor) Limited. The dispute arose from attempts to split a family farming business and the transfer by the respondents of two major landholdings and money from the Company to a new company (Williams Caernarfon Limited), owned and controlled by the respondents.

Nature of the claim: A petition under section 994 Companies Act 2006 alleging conduct of the company’s affairs that was unfairly prejudicial to the petitioner’s interests as a member. The petitioner sought relief in respect of alleged misappropriation of company assets (Plas Llanfaglan and Tyddyn Alys) and of £95,000 taken from the Company bank account.

Procedural posture: First instance trial of the limited issue whether the respondents had conducted the Company’s affairs in a manner unfairly prejudicial to the petitioner. The court had previously refused permission for a derivative claim; this judgment resolves the section 994 petition issue after a six-day remote trial and written submissions.

Issues framed:

• Whether the transfers of the two landholdings and the transfer of £95,000 were authorised or lawful and, if not, whether they were unfairly prejudicial to the petitioner under section 994.
• Whether any delay by the petitioner in bringing proceedings made it inequitable to grant relief.
• Whether the conduct involved breaches of directors’ duties under Part 10 of the Companies Act 2006 (sections 171, 172, 173, 174).

Court’s reasoning and conclusions: The judge set out relevant law on unfair prejudice, noting the objective tests for prejudice and unfairness and the court’s wide remedial discretion. He concluded that although the parties had discussed and intended a de-merger and division of the farming business, there was no completed agreement or authorisation at the time the respondents caused two freehold properties to be transferred to NewCo. The transfers were unilateral, undertaken without the petitioner’s knowledge, and in breach of the respondents’ duties as directors. The transfers were therefore prejudicial to the petitioner (a one-third shareholder) and unfairly so. The court accepted that the transfers may have exposed the Company to tax consequences, increasing the prejudice. By contrast, the £95,000 transfer was held to have been part of the practical interim arrangements agreed to facilitate separate farming operations and the petitioner knew of and did not challenge that transfer at the time; it was not unfairly prejudicial. Delay did not justify denial of relief because the transfers remained steps in an incomplete de-merger and their consequences continued to affect the petitioner. The judge concluded the petition was well founded and indicated that setting aside the land transfers and regularising the company affairs (by de-merger or winding up) were likely necessary, but left detailed orders to be agreed after submissions.

This is a first-instance judgment. The petition under section 994 Companies Act 2006 is well founded: the respondents conducted the affairs of the Company in a manner unfairly prejudicial to the petitioner by transferring Plas Llanfaglan and Tyddyn Alys to Williams Caernarfon Limited without the petitioner’s knowledge or authority and in breach of their duties as directors. The transfer of £95,000 was not unfairly prejudicial because it formed part of the practical interim division of business known to the petitioner. Relief is not denied for delay; practical relief (including setting aside the land transfers and/or regularising the position by de-merger or winding up) remains to be determined and the court will hear submissions as to the form of order.