Lisa Pickering v John Robert Hughes & Ors

A member’s petition under Companies Act 2006, section 994 requires both relevant prejudice and unfairness. In an insolvent company, the member will generally need to show that the shares would have had value but for the complained-of conduct, subject to wider financial interests connected with the shareholding.

The court will not use an unfair-prejudice petition to resolve ordinary disagreements about commercial management. Mismanagement must be extreme before it can establish unfair prejudice. Directors’ subjective assessment under section 172 remains central, but as insolvent liquidation or administration becomes inevitable, creditors’ interests progressively assume greater weight. A pre-pack sale does not itself unfairly prejudice a member merely because the member receives no interest in the acquiring business.

Lisa Pickering petitioned under section 994 of the Companies Act 2006, alleging unfair prejudice in the affairs of Portbond Limited and its subsidiary, London Wiper Company Limited. The allegations concerned cash sales, investigations into and removal of Lisa, proceedings brought against her, the dismissal of her son, personal expenditure and directors’ loan accounts, and the administration and pre-pack sale of the companies’ business and assets.

The companies had entered administration and their business and assets were sold to Remet Processing Limited. John and James Hughes subsequently obtained interests and management roles in the acquiring business. The central issues were whether the alleged conduct was unfairly prejudicial, whether the directors acted in breach of duty when placing the companies into administration, and whether Lisa had suffered legally relevant prejudice.

1. Petition dismissed. No instance of unfair prejudice was established. Consequential matters were adjourned, with the parties given 21 days to agree an order.
2. Section 994 requires prejudice to the petitioner in her capacity as a member and unfairness. Prejudice is ordinarily commercial harm, commonly reflected in diminution of the value of the shareholding, although wider interests connected with membership may qualify. In an insolvent company, the general requirement is that the petitioner show that the shares would have had value but for the wrongdoing. The qualification recognised in Gamlestaden Fastigheter AB v Balti Partners Ltd concerns connected financial interests, such as a creditor interest.
3. The court will not resolve differences of commercial judgment under section 994. Poor management is not enough. Management failures must be extreme, falling materially below the standards reasonably expected of directors.
4. The allegations concerning cash sales, the investigation into Lisa, her removal, the proceedings brought against her, and Charlie Pickering’s dismissal were rejected on the evidence. The investigation was genuine and fairly conducted. The proceedings against Lisa had a proper basis. The dismissal of Charlie was supported by the independent disciplinary process and, in any event, any failing would have amounted at most to mismanagement rather than unfair prejudice.
5. The directors’ loan accounts were debts owed to the companies, not unlawful returns of capital or disguised dividends. Although the failure to repay or clear the loans could potentially raise an interest-related loss, Lisa had herself received substantial benefits which she had agreed to repay. The court therefore found no unfairness and would not have ordered a buy-out.
6. Under section 172 of the Companies Act 2006, the director’s belief as to what would promote the company’s success is subjective. As insolvency becomes probable or inevitable, creditors’ interests must be taken into account and ultimately become equivalent to the interests of creditors as a whole. The directors and Grant Thornton pursued a solvent outcome where possible and then sought the best available result for creditors.
7. The pre-pack was a decision of the administrators. Lisa had no legitimate expectation to receive shares or management rights in the acquiring company. Partial disclosure of the directors’ proposed roles and interests was established, but culpable non-disclosure was not. Fuller disclosure would not have altered the price or produced a solvent outcome.
8. The late allegations concerning machinery and stock were refused as amendments and were in any event not proved. The evidence did not establish that company assets had been misappropriated or that recovery would have generated shareholder value.

First-instance decision. No earlier appellate stage is stated in the judgment.