Samuel Metson v David Metson & Ors

A petition under Companies Act 2006, section 994, requires conduct of the company's affairs that is both unfair and prejudicial to the petitioner's interests as a member. Prejudice may consist of disregarding fundamental membership rights, including the right to appoint and remove directors, without financial loss.

Directors must exercise powers for their proper purposes and must not manipulate corporate powers to influence the outcome of a shareholders' meeting. Where preference dividends are due and payable, book entries in loan accounts do not constitute payment in cash without shareholder agreement. A company may ordinarily rely on the registered senior joint holder's vote, but directors may breach their duties by knowingly recognising a vote cast in breach of trust to secure control of the board.

The petitioner, a shareholder and director of a family company, alleged that its affairs had been conducted in an unfairly prejudicial manner. The complaints concerned the invalid registration of a director, the attempted payment of preference dividends to remove voting rights, the voting of shares held by trustees, the conduct of a general meeting, and the entry into a long-term shooting agreement with a connected company.

The central issue was whether the respondents' conduct was unfairly prejudicial within section 994 of the Companies Act 2006, and, if so, what relief should be granted under section 996.

1. The petition was well-founded in part. The invalid appointment of Diana Metson, the payment arrangements for preference dividends, the recognition of the trust-share votes, the failure to count eligible preference-share votes, and the manipulation of the general meeting involved breaches of the company's constitution or directors' duties. The petitioner nevertheless suffered no material prejudice from the invalid appointment, the registration of the trust shares, or the attempted payment of dividends considered separately.
2. There was no resolution appointing Diana Metson at the February 2020 meeting. Her registration was therefore invalid and breached the duty under section 171(1)(a) of the Companies Act 2006 to act in accordance with the company's constitution.
3. The accrued preference dividends were due and payable, subject to sufficient distributable profits. Payment in cash or by an equivalent immediate transfer was required. Creating loan accounts did not constitute payment without the shareholders' agreement. The relevant preference shareholders therefore retained their voting rights. The directors' primary purpose in attempting payment before the general meeting was to disenfranchise them, contrary to section 171(1)(b).
4. Trustees of a non-charitable trust ordinarily must act unanimously. David Metson acted in breach of trust by voting against the wishes of his co-trustee. Under regulation 63 of Table A and section 286 of the Companies Act 2006, the company could ordinarily rely on the registered senior joint holder. However, David's conduct in causing the company to recognise the vote, knowing or being reckless as to its unlawfulness, breached sections 172 and 175.
5. The failure to count the votes of eligible preference shareholders breached the company's constitution and section 171(1)(a). The manipulation of the meeting to secure Andrew Montlake's appointment and prevent Roger Hayward's appointment breached section 172. The right to appoint and remove directors is a fundamental membership right, and its disregard constituted prejudice.
6. The shooting agreement did not give rise to relief. Section 175(3) excluded the conflict from that section because it arose in connection with a transaction or arrangement with the company; in any event, no material prejudice remained when the petition was issued.
7. Relief was granted under section 996. Mr Montlake was declared not to be a director, the company was restrained from recognising or holding him out as one, the trust shares were partly transferred into joint names with Sam Metson first-named, and a further meeting could be ordered if supported candidates were willing to act. The petition was adjourned for consequential orders.