SURINDER GREWAL v SARJIT CHAKRABORTY

A shareholder’s unpaid contractual consideration does not, without more, invalidate or alter the shareholder status created by a valid allotment and recorded in the company’s registers. The unpaid sum may instead give rise to a personal debt claim between the contracting parties. In unfair prejudice proceedings, the court has a broad discretion under Companies Act 2006, s.996, as to remedy. An appellate court should interfere only where the first-instance judge failed to take account of a material factor. A private debt owed by a majority shareholder to the petitioner will not necessarily bear on the appropriate share-buyout remedy where it does not affect the debtor’s status as majority shareholder.

The appellant had succeeded in unfair prejudice proceedings concerning the management of Astha Limited. The trial judge, HHJ Johns QC, found that the respondent held 51 per cent of the shares and ordered her to buy the appellant’s 49 per cent shareholding.

The appellant appealed against that remedy. He argued that the judge had failed to give proper weight to the respondent’s failure to pay £12,500 which she had agreed to pay under a 2007 agreement in connection with acquiring her shareholding. The central issue was whether that non-payment affected the respondent’s status as majority shareholder or required a different remedy.

1. Appeal dismissed. The trial judge had correctly exercised the broad remedial discretion conferred by Companies Act 2006, s.996. Appellate interference was justified only if a material factor which ought to have been considered had been omitted.
2. The 2007 agreement was superseded or overtaken by events insofar as it contemplated the appellant’s sale of his shares and departure from the business. He remained a shareholder, so that part of the agreement was not carried through.
3. The respondent’s liability to pay £12,500 was not extinguished. The agreement recorded that she was already indebted in that sum, and the liability pre-dated the agreement. She therefore continued to owe the unpaid balance as a personal debt.
4. That contractual debt was distinct from the respondent’s status as a shareholder. The 2006 allotment created the agreed shareholding, and the shares were recorded as fully paid in the company’s filings and records. Under Companies Act 2006, s.112, a person whose name is entered in the register of members is a member of the company. The respondent therefore remained the 51 per cent majority shareholder despite the unpaid personal debt.
5. The failure to pay did not materially affect the remedy. It was a debt owed personally to the appellant and did not alter his position as a minority shareholder subjected to unfairly prejudicial conduct. The judge was consequently entitled to order the respondent, as majority shareholder, to buy the appellant’s shares.

• High Court (Chancery Division): appeal from the decision of HHJ Johns QC in unfair prejudice proceedings. The appeal against the share-buyout remedy was dismissed.