Kerrie Heywood v Kevin Freakley & Ors.

A registered shareholder, including a trustee or nominee shareholder, may present a petition under Companies Act 2006, s.994, even where another person holds the beneficial interest. The beneficial owner’s interests will ordinarily be treated as those of the registered holder, unless they conflict. An allotment of shares which dilutes a shareholder’s effective interest without consent or notice may constitute unfairly prejudicial conduct, particularly where it breaches statutory pre-emption rights. A company’s release of valuable contractual rights for the benefit of directors or fellow shareholders may also be unfairly prejudicial where it is affected by a conflict of interest and confers no obvious benefit on the company.

The petitioner, a shareholder of K&B Homes Ltd, sought relief under Companies Act 2006, s.994. The liability issues concerned the dilution of her effective shareholding from 50% to 25% by the allotment of shares in March 2018, and the company’s release in August 2019 of its rights under a building agreement relating to a residential development. The respondents argued that the petitioner lacked standing because she was only a nominee for Mr Banks. The court therefore had to decide whether she was entitled to petition and whether the two matters constituted unfairly prejudicial conduct.

1. Standing. The petitioner was the registered owner of one share and therefore a member entitled to petition under Companies Act 2006, s.994. A trustee or nominee shareholder may also petition even where the beneficial interest belongs to another. The beneficial owner’s interests will normally be treated as those of the registered holder unless there is a conflict. Any issue as to the beneficial ownership of the share could affect the appropriate remedy, but not standing.
2. Dilution. Although the petitioner and the first respondent were jointly registered as holders of one share, she was to be treated in equity as owning 50% of the company’s equity. The company’s re-registration of the existing share and allotment of three new shares, without her consent or notice, reduced her effective interest to 25%. The allotment of the two A shares to Kelly Freakley also breached the pre-emption provisions of Companies Act 2006, s.561. The conduct was unfairly prejudicial, reinforced by the concealment of the allotment.
3. Release of contractual rights. The company had valuable rights under the building agreement and was entitled to retain the net sale proceeds after payment of priority sums. Kevin Freakley was plainly conflicted when he purported to release those rights on behalf of the company while also benefiting as a landowner. The asserted inability to fund completion, threatened insolvency and agreement to the release were unsubstantiated or false. The release deprived the company of its only valuable asset and benefited the other shareholders. It was plainly unfairly prejudicial.
4. Liability was established on both pleaded grounds. The question of the appropriate remedy and quantum was adjourned for a later trial.