Gallium Fund Solutions Group Ltd, Re

Key legal principles and grounds of decision:

• The court applied the statutory unfair prejudice jurisdiction under section 994 of the Companies Act 2006 and the discretionary relief in section 996. The benchmark for liability is conduct that is both unfair and prejudicial to the petitioner as a member (see O'Neill v Phillips and Re Saul D Harrison & Sons plc as the legal framework).
• The judge found that Mr Norris had excluded Mr Dooley from management in breach of the parties' quasi-partnership arrangement and the company constitution, thereby causing unfair prejudice. The court treated the exclusion, the unilateral appointment of Mrs Norris, and other conduct as unconscionable interference with the legitimate expectations of the petitioner.
• The court found breaches of directors' duties (including the statutory duty to avoid conflicts under section 175 and duties to disclose under sections 177/182 of the Companies Act 2006) in relation to the Alpine Fund commission and in respect of Oaksmore. The strict equitable "no profit/no conflict" principles (Regal (Hastings) Ltd v Gulliver and authorities such as Bhullar v Bhullar and Re Allied) required accounting for secret profit and/or the restitution of benefits obtained by Mr Norris.
• As the appropriate remedy under section 996, the court ordered a purchase of the petitioner's shares. Share valuation was carried out on a fair-value, pro rata basis (no minority discount), applying adjusted maintainable earnings (EBITDA) and an EV/EBITDA multiplier, with specific "add-backs" to correct for prejudicial conduct and distortions in the reported accounts.

Background and parties: The Company (Gallium Funds Solutions Group Ltd) was a two-person quasi-partnership between Mr Peter Dooley (petitioner) and Mr Anthony C. Norris (respondent). The business provided fund administration, depositary and related regulated services. Mr Dooley alleged that Mr Norris had acted in a manner unfairly prejudicial to his interests under sections 994–996 Companies Act 2006, seeking an order for purchase of his shares. The respondent Oaksmore Portfolios AIFM Ltd and Mrs Norris were joined as relevant to allegations about diversion of business and related transactions.

Nature of the application / relief sought: The petitioner sought relief under s.996 (purchase of his 50% shareholding) on the basis of unfair prejudice under s.994. The primary factual contention advanced by Mr Dooley was that Mr Norris had accepted that he would buy Mr Dooley's shares and that only price remained in issue. The respondents denied any admission of unfair prejudice and contested aspects of liability and valuation.

Procedural posture: First instance trial in the Insolvency & Companies Court before Insolvency and Companies Court Judge Jones. The case proceeded to a full trial (witness and expert evidence) dealing both with liability and with valuation issues. The court heard contested evidence about whether Mr Dooley resigned in February 2016 or was wrongfully excluded, the treatment of initial £50,000 payments, alleged secret commissions from the Alpine Fund, the nature and resourcing of Oaksmore, and substantial director/employee remuneration and related-party matters.

Issues framed by the court:

• Whether the Company's affairs had been conducted in a manner unfairly prejudicial to Mr Dooley as a member (s.994), including whether he had been excluded from management wrongfully and whether Mr Norris had breached fiduciary/statutory duties in relation to Oaksmore and the Alpine Fund.
• If unfair prejudice was established, what relief should be granted under s.996 (principally an order for purchase of shares), and how the shares should be valued (date 31 October 2018) including which add-backs and adjustments should be made to reported earnings and which multiplier should be applied.
• Whether the respondent had in substance accepted liability (such that only valuation remained) and whether any agreed limitation of issues at earlier case management should preclude full adjudication of liability.

Court’s reasoning (concise):

• Liability: On the balance of probabilities, the court concluded there was no binding resignation by Mr Dooley at the 15 February 2016 meeting; rather the credible evidence established he was excluded and that Mr Norris subsequently caused his removal to be recorded and implemented. That exclusion breached the parties' quasi-partnership understanding and the company constitution and was therefore unfair and prejudicial under s.994.
• Directors' duties and conflicts: The court found that the personal commission arrangement with the Alpine Fund originated from opportunities arising in the course of company business and that Mr Norris had therefore been in breach of the "no conflict/no profit" fiduciary rule and section 175 Companies Act 2006. The payment of £200,000 to Mr Norris from company funds (later repaid by the Alpine Fund) and the further £180,000 due were treated as amounts for which Mr Norris must account. Oaksmore's formation and the extent of Mr Norris's involvement, together with the paucity of disclosure about related records, supported a conclusion that he did not properly disclose or explain conflicts or diversion and that company resources and staff time had been used in ways that were prejudicial to the petitioner (the court found inadequate explanation/evidence from the respondents on disclosure).
• Remedy and valuation: Having found unfair prejudice and misfeasance, the court exercised its s.996 discretion to order a purchase of the petitioner's shares. The court accepted that valuation should be on a fair-value, pro rata (no minority discount) basis and as at 31 October 2018, using maintainable earnings (EBITDA) adjusted by identified "add-backs" to correct distortions caused by unfair conduct and by an EV/EBITDA multiple within a reasoned range. The court made specific findings on add-backs (director remuneration adjustments, certain non-recurring items, adjustments for Oaksmore-related distortions, agreed s.166 and professional costs, etc.) and selected an EV/EBITDA multiplier after weighing the experts' competing opinions and the global circumstances.
• Specific accounting and restitution orders: The court treated the Alpine Fund commission sums and the company’s Alpine Fund units as assets of the company for valuation purposes; the £200,000 already received by Mr Norris and the further £180,000 were to be reflected in the company valuation and the £200,000 ordered to be accounted for with interest.

Result: The court ordered a purchase of the petitioner’s 50% shareholding. The court fixed the valuation methodology, determined the appropriate add-backs and multiplier (after global assessment) and calculated the purchase price accordingly. The judgment includes directions for completion and an express timetable for payment and transfer (subject to limited application for extension and security). The judge also recorded briefing about procedural disclosure shortcomings and expert discussion failures but proceeded to determine liability and value on the evidence presented.

This is a first instance judgment. The petition under section 994 Companies Act 2006 is upheld. The court found the Company's affairs were conducted in a manner unfairly prejudicial to the petitioner (wrongful exclusion from management and breaches of directors' duties including misuse of corporate opportunities and secret profits relating to the Alpine Fund and inadequate disclosure/possible diversion involving Oaksmore). Relief under section 996 was granted in the form of an order requiring the respondent, Mr Norris, to purchase the petitioner's 50% shareholding. The court determined valuation as at 31 October 2018 after specific add-backs and adjustments and fixed a multiplier after global assessment; the judge ordered completion and payment by a specified date (subject to limited application for extension or security).