LAURENCE PAGDEN v SOHO SQUARE CAPITAL LLP

The court held that it would not interfere with the votes cast at the members' meeting of Core VCT plc on 20 December 2021. The principal legal question was whether the court, when giving directions under section 112 of the Insolvency Act 1986, may disregard or exclude votes cast by members who are the subject of claims issued by the liquidators. The judge reviewed authority recognising the general proprietary right of shareholders to vote in their own interests, but noted established exceptions where votes may be disregarded (for example, fraud on the minority, scheme meetings and derivative actions).

Applying those principles, the court concluded that intervention in Core's internal management and members' votes is permissible only in limited circumstances where the majority decision is produced by unfair or improper means, fraud, illegality or oppression amounting to an abuse of power such that no reasonable person could regard the vote as for the company’s benefit. The judge found those exceptional circumstances absent: the removal vote was not procured by unfair or improper means and bringing fresh scrutiny via replacement liquidators could be for the company’s benefit. Accordingly the court declined to discount the votes of the Soho Respondents and confirmed that there were no grounds to intervene in the votes.

Background and parties: The applicants were the joint liquidators of Core VCT plc, Core VCT IV plc and Core VCT V plc, restored to the register after prior dissolution. The respondents included the fund manager (Soho Square Capital LLP) and certain individuals. The proceedings arose from the restoration litigation and subsequent claims issued by the joint liquidators alleging breaches of duty, knowing receipt and related causes of action.

Nature of the application: The hearing (the "Sanction Hearing") before an Insolvency and Companies Court Judge was convened pursuant to the Court of Appeal's directions ([2020] EWCA Civ 1207). The central issue was whether the votes of members who are the subjects of the joint liquidators' claims (notably the Soho Respondents) should be excluded or disregarded when determining whether the joint liquidators should remain in office, for the purposes of giving directions under section 112 IA 1986.

Procedural posture: The companies had been restored to the register by order of Fancourt J. That restoration was the subject of an appeal to the Court of Appeal which allowed the appeal and directed the convening of meetings of members. At the meetings the first resolution (to remain restored) passed and the second resolution (that the joint liquidators should remain in office) passed for two companies but was rejected for Core VCT plc. The Sanction Hearing was to decide whether certain members' votes should be counted.

Issues before the court:

• Whether, under section 112 IA 1986 and the court's supervisory jurisdiction, votes cast by members who are subjects of claims may be disregarded.
• Whether the circumstances in this case met the threshold for intervention (fraud, illegality, unfair or improper means, or oppression of a nature that no reasonable person could regard the vote as for the company’s benefit).
• Whether any perceived conflicts of interest or the funding arrangements justified excluding votes or replacing the joint liquidators.

Court’s reasoning: The judge reviewed authorities concerning shareholder voting rights and recognised the limited exceptional circumstances in which courts have intervened (derivative actions, scheme meetings, fraud on the minority, and cases of oppressive conduct). He emphasised the statutory context of a members' voluntary liquidation, including the court’s power to appoint or remove liquidators (sections 108 and 112 IA 1986), and the need to guard against routine interference in members’ proprietary voting rights.

The judge concluded that intervention is appropriate only where the majority decision was brought about by unfair or improper means, fraud, illegality or oppressive conduct of an abusive nature. Applying those criteria, he found no such features: the vote to remove the joint liquidators in Core was not procured by improper means; the proposed replacement arrangements and funding did not demonstrate that removal would be for the company’s detriment; and concerns about the joint liquidators’ partiality, conduct and funding were not of the degree requiring their exclusion.

Outcome: The court declined to disregard the votes of the Soho Respondents and found no basis to intervene in the members’ votes at the meeting of Core’s members on 20 December 2021. The judge also observed that Fancourt J’s restoration order should be confirmed in light of the meeting results.

Application dismissed. The court refused to exclude or disregard the votes cast by members who were the subjects of the joint liquidators' claims (including the Soho Respondents). The judge held that interference with members' proprietary voting rights in a members' voluntary liquidation is permissible only in limited exceptional circumstances (fraud, illegality, unfair or improper means or oppression constituting abuse). Those circumstances were not established here, and the court therefore declined to intervene; Fancourt J's restoration order should be confirmed in light of the meeting results.

Fancourt J made an order restoring the companies to the register (restoration application). That restoration was challenged and in the Court of Appeal the appeal was allowed: [2020] EWCA Civ 1207, which directed that general meetings be convened and that further hearings be listed to determine whether the restoration order should be confirmed and how votes should be treated. Prior to the Court of Appeal decision, a Deputy High Court Judge dismissed an application to remove the joint liquidators (15 March 2019).