SHICHUANG XIE v QINGHENG MENG & Ors

The petition under section 994 of the Companies Act 2006 was a first-instance unfair prejudice claim concerning alleged improper removal of a director, invalid share allotments, disputes over the parties' alleged oral agreements (the so-called June Agreement and August Agreement) and ownership and transfer of the "Bubble CiTea" brand and its EU trademark. The judge found that the asserted June Agreement, August Agreement and the August written board resolution did not exist and were not binding. The sums advanced by the petitioner to the company were loans and, in the absence of agreed terms, were repayable on demand. The removals of the petitioner as director and the appointments and the allotments of 30 non‑voting shares (August 2019) and 10,000 ordinary shares (June 2020) were invalid for want of the required formalities and were treated as ineffective. The brand belonged to Bubble City Ltd and the subsequent transfer of the EU trademark to Bubble City was valid; the Third Respondent’s exercise of his contractual recall right under the Purchase of Business Agreement was effective. The court found a joint scheme by the respondents to dilute and exclude the petitioner and concluded that relief should follow on the findings; parties were directed to agree terms of relief.

The petitioner, Mr Xie, brought an unfair prejudice petition under section 994 Companies Act 2006 following a breakdown of relations after investment into a bubble‑tea business run through Enno Capital Ltd (the Company). The principal contested matters at the liability hearing were whether monies advanced by the petitioner were loans and their terms; whether oral agreements (described in the parties' pleadings as the June Agreement and August Agreement) and a written board resolution of 10 August 2019 (the August Resolution) governed the parties' relationship; the validity of various share allotments and director removals/appointments; and ownership and transfer of the "Bubble CiTea" brand and its EU trademark.

The court set out the agreed issues for trial, recited each party's case and described significant deficiencies in contemporaneous documentation and the parties' oral evidence. The respondents relied centrally on the August Resolution as creating the governance framework and on asserted collateral agreements limiting the petitioner's rights. The petitioner denied the existence of those agreements and asserted that the payments he made were loans and that the respondents acted to dilute and exclude him.

The judge analysed the documentary and oral evidence, noting that key documents were LawDepot templates generated by the First Respondent, that the petitioner had limited English and relied on translators, and that several post hoc documents (notably purported amended articles) were unreliable. The court rejected the existence of the June and August Agreements and held that the August Resolution did not reflect any consensual change to the parties' rights: it contained inconsistencies and lacked terms pleaded by the respondents (for example, it did not contain the 100‑store condition). The court found that the petitioner had in fact been issued shares (95) and had funded the company and that the monies advanced were loans repayable on demand in the absence of agreed terms.

On the company governance issues, the judge held that the removals and appointments of directors did not comply with the statutory and constitutional formalities (for example, section 168 Companies Act 2006 and the Model Articles) and were therefore invalid. The allotments of the non‑voting 30 shares and the 10,000 ordinary shares were made without proper authority or resolution and were ineffective. On the intellectual property dispute, the court found that the brand was owned by Bubble City Ltd and that the Company’s rights were limited to what was conferred by the executed Purchase of Business Agreement; the Third Respondent validly exercised his contractual recall right under that agreement and the transfer of the EU trademark to Bubble City was validly effected. The judge recorded that the actions of the respondents evidenced a joint scheme to dilute and remove the petitioner and that the petitioner had established unfair prejudice on the pleaded heads. The court concluded liability in the petitioner’s favour on the contested issues and directed the parties to agree the terms of relief (the trial being limited to liability), with liberty to apply for consequential orders.

First instance – the court found for the petitioner on liability. Key findings: the sums advanced by the petitioner were loans repayable on demand; there was no concluded June Agreement or August Agreement; the August Resolution was not binding; the removals and appointments of the petitioner as director were invalid; the allotments of 30 non‑voting shares (August 2019) and 10,000 ordinary shares (June 2020) were invalid and ineffective; the Brand belonged to Bubble City Ltd; the transfer of the EU trademark to Bubble City was valid and effective; the respondents had participated in a joint scheme to dilute and exclude the petitioner. On those findings the petition succeeded on liability and the parties were directed to agree terms of relief.