Samuel Metson v David Metson & Ors

This is a first‑instance unfair prejudice petition under section 994 of the Companies Act 2006 concerning the governance of Baker & Metson Limited. The court found that various actions taken by Mr David Metson and by Mr Andrew Montlake were unlawful or constituted breaches of directors' duties in relation to the Company’s constitution and the promotion of the company’s success, notably: (i) Diana Metson was not validly appointed by the board on 3 February 2020 and her registration at Companies House was therefore wrongful; (ii) the steps taken in mid July 2020 to disenfranchise preference shareholders (payment by book entries/loan accounts) were motivated substantially by an improper purpose — to prevent those shareholders voting at the general meeting — and thus breached the directors’ duty to exercise powers for a proper purpose (section 171 CA 2006); and (iii) the conduct of the general meeting on 22 July 2020 (including recognition of votes cast by the trustee‑registered ordering of the Trust shares and the failure to count other preference shareholders’ votes) was conducted so as to influence the outcome of the meeting and thereby breached the duty to promote the success of the company and the duty to avoid conflicts (sections 172 and 175 CA 2006).

The petition was held well‑founded in part. The court declared that Mr Montlake’s appointment should not be recognised and ordered other consequential relief including rectification steps for the Trust shares and directed further hearing to consider an ordered shareholders’ meeting to remedy the prejudice. The court declined to order purchase of shares or to make some of the financial relief sought because no material financial loss to the company had been shown.

Background and nature of the claim

The petitioner, Samuel (Sam) Metson, is a director and substantial shareholder of a family company, Baker & Metson Limited. He presented a petition under s.994 Companies Act 2006 alleging that the company’s affairs had been conducted in a manner unfairly prejudicial to his interests and those of other shareholders. Core complaints included the alleged invalid appointment and later confirmation of Diana Metson as a director, the negotiation and execution of a ten‑year Shoot Agreement between the company and Grange Sporting Limited (GSL) controlled by family members, payment of accrued preference share dividends in a manner designed to disenfranchise preference shareholders ahead of a contested general meeting, the voting of the Trust’s 4,300 ordinary shares by the first‑named trustee, and the conduct of the general meeting on 22 July 2020 which resulted in the registration of Mr Andrew Montlake as a director.

Relief sought

• Declarations and orders that certain appointments (in particular Mr Montlake) not be recognised;
• an order convening a shareholders’ meeting to put resolutions removing and (if desired) re‑electing directors under court direction;
• rectification of the register of members; other ancillary relief including indemnity/accounting and declarations about chairman status.

Issues for decision

1. Whether the various complained acts were acts in the conduct of the company’s affairs for the purposes of s.994;
2. Whether conduct was unfair (including breaches of the company constitution and of directors’ duties under ss.171, 172 and 175 CA 2006 and relevant Table A provisions);
3. Whether the conduct was prejudicial to the petitioner as a member;
4. What remedy the court should exercise under s.996 CA 2006 if the petition was well founded in whole or in part.

Court’s reasoning and findings

• The court applied established principles: unfairness is judged against the legal background of the company (articles, any shareholders’ understandings and fiduciary duties); prejudice must be to the petitioner in his capacity as a member.
• The court found that Diana was not validly appointed at the 3 February 2020 meeting; registration at Companies House on 19 February 2020 was therefore improper and breached the duty to act within the company constitution (s.171(1)(a)).
• The court held that the primary and substantial purpose of the July 2020 steps to discharge accrued preference dividends (including use of loan accounts or book entries) was improper — to disenfranchise preference shareholders at the imminent general meeting — and so breached the proper‑purpose duty in s.171(1)(b). The court treated payment to the petitioner of his preference dividend as cash; other book‑entry arrangements did not, without agreement, amount to lawful payment for the purpose of the memorandum/articles.
• The Trust shares were registered with Mr David Metson as first‑named trustee by entries made earlier (found to have been written up between 2012 and 2017). The court rejected the submission that the company should look behind the register; nevertheless the court held that the recognition at the 22 July meeting of votes cast by the first‑named trustee (when the co‑trustee objected) was a matter that gave rise to unfair conduct because it formed part of an overall scheme to manipulate the meeting outcome. The trustees’ unanimity principle under trust law was acknowledged but the company’s obligation to accept the registered first‑named holder’s vote under the articles/regulation 63 was also recognised.
• The court found that the manner of conducting the general meeting on 22 July 2020 — including the failure to recognise other preference shareholders’ votes and the recognition of the trustee‑ordered Trust votes so as to secure Mr Montlake’s appointment — constituted unfairly prejudicial conduct in that it disregarded the shareholders’ rights to determine board composition and thereby prejudiced the petitioner as a member.
• On the Shoot Agreement, the court found that David had no board authority to enter into the ten‑year form and that there was a conflict of interest in negotiating with his son’s company; however, the ten‑year agreement had been terminated before the petition and no material prejudice to members remained from that agreement at the time of the petition.

Remedy and procedural outcome

The petition was held well founded in part. The court declared that Mr Montlake is not a director of the company and ordered the company not to recognise him or hold him out as a director until validly appointed. The court directed rectification steps in relation to the Trust holding (splitting and re‑registering half the Trust shares with Sam as first‑named trustee) and made a declaration that David had not been properly elected as chairman under Table A. The court adjourned to hear submissions and consider whether to order a court‑convened shareholders’ meeting to put appropriate resolutions (including permitting the preference shareholders to vote) to remedy the prejudice. Some financial or indemnity relief sought was refused because no material company loss had been shown.

The petition under section 994 CA 2006 is well founded in part. The court held (inter alia) that Diana Metson was not validly appointed on 3 February 2020 and that the steps taken in July 2020 to disenfranchise preference shareholders were substantially motivated by an improper purpose and therefore breached directors’ duties (sections 171 and 172 CA 2006). The court declared that Mr Andrew Montlake is not to be recognised as a director and ordered rectification steps regarding the Trust shares; the court adjourned to consider and, if appropriate, to order a court‑convened shareholders’ meeting to cure the prejudice. Some of the other remedies sought (for example broad indemnities or capital‑reorganisation orders) were refused as not appropriate on the facts.