MI Squared Limited v Jeremy King

On an urgent application under Arbitration Act 1996, the court applies the ordinary interim-injunction principles. Where the injunction would effectively determine the dispute, the court must assess the parties’ relative merits without conducting a mini-trial. It must also weigh the balance of convenience. Contractual restrictions on directors’ powers do not require directors to act contrary to their honestly held view of the company’s best interests or to surrender independent judgment. Where insolvency or probable insolvency engages the creditor-interest duty, creditors’ interests, including their interest in being paid, are central. The injunction was refused because the claimant’s case was insufficiently strong and the balance of convenience favoured the defendants.

MI Squared, the majority shareholder of Corbin & King Limited, sought urgent injunctive relief against the company’s directors under section 44 of the Arbitration Act 1996. The injunction would have prevented the directors from arranging or implementing new borrowing, repaying indebtedness, or encumbering group assets without MI Squared’s approval under a shareholders’ agreement.

The application arose after a secured group loan was demanded and a fund proposed replacement financing on allegedly more favourable terms. The company was in administration and key subsidiaries were subject to insolvency moratoria. The central issues were whether the shareholders’ agreement required the directors to prevent the proposed loan, whether its contractual qualification preserved their fiduciary duties, and whether interim relief should be granted.

1. Application refused. The injunction was not granted. Its practical effect would have been effectively final: refusal would permit the proposed financing, while granting relief would lead to administration of the relevant subsidiaries.
2. The principles applicable under section 44 of the Arbitration Act 1996 were the same as those governing an injunction under section 37(1) of the Senior Courts Act 1981. Ordinarily, the court applied the three-stage American Cyanamid inquiry: a serious issue to be tried, adequacy of damages, and the balance of convenience. Because the decision was likely to determine the dispute in practice, the court also considered the relative merits, without conducting a mini-trial, applying the guidance in Forse v Secarma Ltd.
3. The shareholders’ agreement probably engaged at least one of the approval matters in Schedule 1. The directors’ contractual obligations also extended, at least arguably, to powers exercised in relation to wholly owned subsidiaries. The wording of the agreement and its control provisions supported that construction.
4. The qualification for powers lawfully exercisable in accordance with fiduciary duties did not apply only where the proposed transaction was the single course properly open to the directors. Such a construction could require directors to act against their honestly held view of the company’s best interests, impair independent judgment, and create different duties depending on whether they had signed the agreement.
5. The directors were subject to the creditor-interest duty because insolvency was engaged. The relevant interest was the creditors’ interest in being paid. Replacing the existing secured creditor with a fund offering more favourable terms was strongly arguable as one reasonable option, although it was not shown to be the only proper course. The improper-purpose case was thin on the present evidence.
6. The balance of convenience favoured refusal. The prejudice relied upon by MI Squared was materially contingent, whereas administration of the subsidiaries carried a more clearly established risk of serious commercial and operational harm, supported by the monitors and the proposed lender.