Williams v Williams & Ors

Conduct may be unfairly prejudicial under section 994 of the Companies Act 2006 where directors remove substantial company assets without authority, in breach of duty and without the member’s agreement. A proposed separation of a family or quasi-partnership business does not authorise unilateral transfers before the terms and method of the de-merger have been agreed and formalised. The court assesses both prejudice and unfairness objectively, in context. Potential adverse tax consequences may constitute prejudice. Delay does not ordinarily justify refusing relief where the impugned transfers remain part of an incomplete de-merger requiring reversal or regularisation. By contrast, a transfer of working capital may not be unfairly prejudicial where it was contemplated as part of an agreed interim division of business operations and the amount is not shown to be inappropriate.

The petitioner and the first and second respondents were brothers, members and directors of the third respondent company, a family farming business. The parties had agreed in principle that the farming operations would be divided, with the petitioner farming at Tai’r Meibion and the respondents farming at Llanfaglan, followed by a formal de-merger.

Before the terms of the de-merger had been agreed, the respondents transferred Plas Llanfaglan and Tyddyn Alys from the company to a company owned by them. They also transferred £95,000 from the company’s bank account as working capital. The petitioner sought relief under section 994 of the Companies Act 2006, alleging unfair prejudice. The trial issue was whether the respondents had conducted the company’s affairs in a manner unfairly prejudicial to his interests.

1. Outcome. The respondents had conducted the affairs of the company in a manner unfairly prejudicial to the petitioner as a member.
2. The parties had agreed only the broad division of farming activities and the objective of pursuing a de-merger. There was no concluded agreement, resolution or authority permitting the respondents to transfer company land without further reference to the petitioner. The unsigned Heads of Agreement provided guidance for further discussion and did not authorise the transfers.
3. The transfers of Plas Llanfaglan and Tyddyn Alys were unilateral acts, carried out without lawful authority and in breach of the respondents’ duties as directors. They were prejudicial both because they removed major capital assets from the company, affecting the petitioner as a one-third shareholder, and because they created potential adverse tax consequences. The conduct was plainly unfair.
4. The court declined to determine whether the Tai’r Meibion tenancy was held on trust for the company or what value it had. Those issues were not necessary to decide the unfair-prejudice issue. Any alleged earlier misconduct by the petitioner would not justify the respondents’ wrongful removal of company assets.
5. The transfer of £95,000 was treated differently. Working capital had been expressly contemplated for the interim division of farming operations. Although the amount had not been specifically agreed, the petitioner knew of the transfer, did not object, and its appropriateness had not been disproved. It was therefore not unfairly prejudicial, although it remained relevant to the final accounting between the parties.
6. Delay did not justify refusing relief. The land transfers remained operative steps in an incomplete de-merger and would need either to be reversed or regularised. The precise consequential relief, including the effect of a charge and a later transfer of part of the land, was left for further determination.