Lisa Pickering v John Robert Hughes & Ors

The petitioner, a 50% shareholder in Portbond Limited, brought a petition under section 994 Companies Act 2006 alleging that the affairs of Portbond (and its trading subsidiary London Wiper Company Limited) had been conducted in a manner unfairly prejudicial to her. The principal complaints were: misapplication of company funds to benefit certain family members; undisclosed "cash sales" of finished stock and diversion of proceeds; wrongful removal of the petitioner (and dismissal of her son) following an internal/accountant investigation; and that the directors engineered administrations and a pre‑pack sale so that the petitioner was excluded from any value while the Relevant Respondents retained benefits through a new trading vehicle (Remet Processing).

The court applied the statutory test in s.994 CA 2006, emphasising that the petitioner must prove both prejudice and unfairness, and in the insolvency context normally must show that her shares would have had value but for the respondents' wrongdoing (Re Tobian Properties Ltd). The judge examined contemporaneous documents, detailed accounting records and expert material and declined a number of late pleadings/amendments.

Key findings were: the allegations of sales of stock for unaccounted cash were not proved; the accountant (Smith Craven) inquiries into the petitioner’s drawings were genuinely-minded and not a pretext to remove her; sums drawn by the petitioner and agreed in the course of investigation substantially reduced any imbalance that might have supported a claim against other family members; director’s loan accounts had been historically used to account for family drawings and the principal remedy for any shortfall would be monetary recovery rather than a share buy‑out; the pre‑pack sale to Remet Processing was not established to be at an undervalue nor a device engineered by the Relevant Respondents to defraud the petitioner; and the petition therefore failed. The petition is dismissed.

The petitioner, daughter of one family shareholder and formerly a director and the accounts/bookkeeping lead, presented a petition under s.994 Companies Act 2006 in respect of Portbond Limited (holding company) and its trading subsidiary London Wiper Company Limited (URCO). She alleged a wide range of unfairly prejudicial conduct including diversion of cash sales, mis‑use of company funds to support family members' lifestyles, an unfair and targeted investigation of the petitioner leading to her removal and litigation against her, the dismissal of her son, and that the directors engineered administrations and a pre‑pack transaction (October 2020) so that the petitioner was excluded from any benefit while the first and second respondents acquired positions and benefits in the purchaser (Remet Processing).

The court heard a split trial directed to liability (valuation reserved). The judge set out the legal framework for s.994 petitions including the requirement to show prejudice and unfairness, the special considerations where a company is insolvent (citing Re Tobian Properties Ltd) and the scope of remedies. The administration and pre‑pack sequence (Grant Thornton as adviser and ultimately as administrators) and the corporate and family background were analysed in detail.

Issues for decision included:

• whether there had been illicit "cash sales" of stock and diversion of proceeds;
• whether the Smith Craven investigation into drawings and the Companies' loan accounts was targeted at the petitioner and improperly used as a pretext for her removal;
• whether the dismissal of the petitioner's son was for an improper purpose;
• whether directors had taken benefits from the Companies in breach of duty (s171/ s172 context was discussed) and whether those matters amounted to unfair prejudice;
• whether the administrations and the pre‑pack sale were engineered to exclude the petitioner and to benefit the Relevant Respondents; and
• whether plant, machinery or stock had been misappropriated in the run up to, or at, the pre‑pack.

The court made extensive factual findings from contemporaneous material and witness evidence, treating family witnesses with caution where appropriate. The judge found that Smith Craven conducted a genuine and properly directed investigation into drawings and that the petitioner had substantial sums drawn which she had agreed or proposed to repay. Evidence for unaccounted-for cash sales was not persuasive; allegations that stock or plant belonging to the Companies had been taken and transferred to the purchaser or to other family companies were not established on the balance of probabilities; and the administrators' decision to pursue a pre‑pack sale to Remet Processing (and the commercial terms achieved) were not shown to be an abuse or a device to exclude the petitioner. The judge declined late amendments where they would cause unfair prejudice to respondents. Given the insolvency context, the judge also explained that monetary remedies for company loss (if any) were the likely route rather than a share buy‑out and in any event the petitioner failed to establish unfair prejudice. The petition was dismissed.

The petition under section 994 Companies Act 2006 is dismissed. The court held that the petitioner had not established acts or omissions in the conduct of the companies’ affairs which were both prejudicial to her as a member and unfair. Key reasons: the accountants' inquiries into drawings were bona fide and not a pretext; the alleged "cash sales" and secret diversion of stock or proceeds were not proved; claims about payments funding family lifestyles were insufficiently distinct from longstanding family practice and/or would be remediable as company claims rather than by a buy‑out; and the administrators' pre‑pack sale to Remet Processing was not shown to be an undervalue or the product of deliberate misconduct by the Relevant Respondents.