Gallium Fund Solutions Group Ltd, Re

For relief under sections 994 and 996 of the Companies Act 2006, a member must establish both prejudice and unfairness in the conduct of the company’s affairs. In a quasi-partnership, exclusion from management may be unfairly prejudicial where it breaches the parties’ agreement, the articles, or a legitimate expectation founded on mutual trust and confidence.

Directors must comply with their fiduciary duties, including the strict duty to avoid conflicts and account for profits obtained through company information or opportunities. A director’s private business may create a conflict even where it operates in a different commercial field. The court may order a share purchase at fair value and make appropriate valuation adjustments for diverted business, excessive remuneration, secret profits and company resources used for another venture.

Mr Dooley and Mr Norris were equal shareholders in Gallium Fund Solutions Group Limited, a holding company for financial-services businesses. Mr Dooley petitioned under sections 994–996 of the Companies Act 2006, alleging that Mr Norris had excluded him from management, diverted opportunities and resources to Oaksmore, received excessive remuneration and profits, and acted in breach of fiduciary duties.

The respondents disputed liability and contended that Mr Dooley had resigned as a director. The court tried liability and valuation together. The central issues were whether unfair prejudice had been established and, if so, what fair value should be paid for Mr Dooley’s 50 per cent shareholding.

1. Liability. The petition succeeded. Mr Norris had unfairly prejudiced Mr Dooley by excluding him from management in breach of the varied quasi-partnership agreement and the company’s articles. The purported resignation was not proved. Mr Norris’s unilateral appointment of Mrs Norris also breached the company’s constitution and section 171 of the Companies Act 2006.
2. Fiduciary duties. Mr Norris’s personal commission arrangement with the Alpine Fund arose from information and an opportunity obtained through the company and his directorship. Section 175 applied. The strict no-conflict rule was engaged irrespective of whether the company could itself have exploited the opportunity. The £200,000 commission was a secret profit for which he had to account, and the further £180,000 commission was treated as a company asset.
3. Oaksmore’s activities included regulated collective investment schemes and were capable of conflicting with the company’s business. Mr Norris failed to provide reasonable information showing that conflicts had been avoided or that company information, opportunities and services had not benefited Oaksmore. His failure to devote the time required by his executive role was also unfairly prejudicial.
4. Valuation. The court applied a fair-value, pro rata valuation without a minority discount. Valuation was an art rather than a science, but could not be speculative. Appropriate add-backs were made for excessive remuneration, related-party payments, unexplained expenditure, bad debts and Oaksmore work. An EV/EBITDA multiplier of 6.75 was selected after a global assessment. The Alpine Fund commission and units were added.
5. Mr Norris was ordered to pay £1,222,418 by 4 pm on 28 April 2021 in consideration for transfer of Mr Dooley’s shares. Company funds could not be used if that would constitute an unlawful distribution of capital.