TIMOTHY SMITH v JOAN SMITH & Anor

The petitioner, a 20% shareholder and former director, petitioned under sections 994–996 of the Companies Act 2006 alleging that the company’s affairs had been conducted in a manner unfairly prejudicial to his interests. The judge found that the company was a family-run quasi-partnership and that equitable constraints arose which made it unfair for the majority shareholder (holding 80%) to dismiss the petitioner as an employee and remove him as a director without offering to buy his shares at a fair price.

Applying established authorities on unfair prejudice and quasi-partnerships (including Re Westbourne Galleries and O'Neill v Phillips), the court held that the petitioner was entitled to a buy‑out order under section 996. The judge valued the company on an asset basis, preferred a contemporary CPR Part 35 valuation of the land, allowed goodwill for the MOT business, rejected deduction of a director’s loan, and determined the petitioner’s 20% holding to be worth £512,000 on a non-discounted basis.

The petitioner, Timothy Smith, held 2,000 ordinary shares (20%) in Clive Smith (Oxford) Ltd. The first respondent, Joan Smith, held 8,000 shares (80%) and was a director. Following a breakdown in the family relationship the respondent caused the petitioner to be suspended, dismissed as an employee (March 2019), and removed as a director (May 2019). The petitioner issued a petition under Sections 994–996 Companies Act 2006 seeking relief for unfairly prejudicial conduct and an order that the respondent purchase his shares at a fair value.

Nature of the claim / relief sought:

• A petition under s.994 alleging the company’s affairs had been conducted in a manner unfairly prejudicial to the petitioner as a member.
• Relief sought under s.996: an order that the majority shareholder purchase the petitioner’s shares at a fair value.

Issues framed by the court:

• Whether the company was a quasi-partnership or, alternatively, whether equitable restraints otherwise arose that limited the respondent’s legal powers to dismiss and remove the petitioner without offering to buy his shares.
• Whether the respondent’s conduct in dismissing and removing the petitioner without offering to purchase the shares was unfairly prejudicial under s.994.
• If relief were appropriate, whether the petitioner’s shares should be valued on a non-discounted basis or discounted to reflect minority status, and the appropriate valuation methodology and figures.

Procedural and evidential background: The petition was determined at first instance after a four-day hearing with lay witnesses and two accounting experts on valuation. The judge evaluated credibility, contemporaneous documents, and expert reports. The petitioner had benefited from a transfer of 2,000 shares in 2012; there was evidence of an informal family understanding that he would continue to participate in the business and ultimately take it over. The judge accepted that the business was run informally, that family trust and understanding were significant, and that the petitioner played a substantive operational and management role over many years.

Court’s reasoning and conclusions:

• The court applied established principles from Re Westbourne Galleries and O'Neill v Phillips on equitable restraints and legitimate expectations. It held that a quasi-partnership or similar equitable restraints can arise in family companies and that a parent’s gift of shares may carry with it implicit understandings if the surrounding facts support that inference.
• On the facts the court found a family quasi-partnership and an implied understanding that the petitioner would continue to participate in management and employment so long as he remained a shareholder. The majority shareholder’s exercise of legal powers to dismiss and remove the petitioner, without offering to buy his shares at a fair non-discounted price, was held to be unfairly prejudicial.
• On remedy the court ordered the majority shareholder to buy the petitioner’s shares under s.996. The valuation was conducted on an asset basis: the judge accepted a recent CPR Part 35-compliant property valuation for the principal site, allowed £50,000 for MOT goodwill (reduced from the expert’s estimate), and retained a director’s loan in the net asset base. The company value was fixed at £2,560,000 and the petitioner’s 20% holding at £512,000 on a non-discounted basis.

The judgment explains the factual findings on credibility, contrasts previous authorities (distinguishing Dinglis v Dinglis), and records that even if the company had not been found a quasi-partnership a buy‑out would still have been ordered on similar grounds.

First instance: The petition succeeds. The court ordered under Section 996 Companies Act 2006 that the first respondent (Joan) purchase the petitioner’s 2,000 shares. Rationale: the court found the company to be a quasi-partnership (or, alternatively, that equitable restraints applied) so that using majority legal rights to dismiss and remove the petitioner without offering to buy his shares was unfairly prejudicial under Section 994; shares were valued on a non-discounted asset basis at £512,000 for the 20% holding.