Idrees Hashmi v Paul Lorimer-Wing & Ors

For the purposes of an unfair-prejudice petition, conduct must be assessed against the company’s constitution, the parties’ agreements and the relevant corporate relationship. A purported removal of a director is ineffective where the company’s articles require proper notice of a directors’ meeting and an opportunity for directors to communicate on the business. Exclusion from management, loss of office, denial of information and termination of related contractual rights may constitute substantial prejudice to a member. Exclusion is not necessarily unfair in itself, but it is unfair where it occurs without a reasonable offer for the member’s shares. A later reasonable offer does not cure an earlier unfair act.

Mr Hashmi petitioned under section 994 of the Companies Act 2006 concerning Fore Fitness Investments Holdings Limited. He was a shareholder, director and independent contractor. The other principal shareholder and director, Mr Lorimer-Wing, purported to remove him under bespoke articles, excluded him from the company’s systems and management, terminated his consultancy arrangement and treated him as a bad leaver.

The central issues were whether the directors had validly resolved to remove Mr Hashmi, whether the conduct was unfairly prejudicial to his interests as a member, and whether he had suffered prejudice.

1. The petition succeeded. The company’s affairs had been conducted in a manner unfairly prejudicial to Mr Hashmi’s interests as a member. Consequential relief was reserved for a further hearing.
2. The Bespoke Articles did not displace Model Articles 9 and 10. A directors’ meeting therefore had to be properly convened, with notice to each director and a means by which each could communicate information and opinions about the business. No agenda or proper notice was given to Mr Hashmi. The purported resolution removing him was invalid, so he remained a director.
3. The procedural failures were substantive. Had Mr Hashmi known of the meeting, he could have objected and sought to persuade Mr Gilbert. The court inferred that Mr Lorimer-Wing deliberately avoided a properly constituted meeting to obtain an advantage, including treatment of Mr Hashmi as a bad leaver and acquisition of his shares at a value referable to the bad-leaver provisions.
4. The court rejected the case that Mr Hashmi had resigned or voluntarily abandoned the company. The contemporaneous documents showed that he had stepped back from software-development work, not from his office as director or from the company generally.
5. Unfairness was established by breach of the company’s constitution, the Investment Agreement and the parties’ understanding that major decisions would be made jointly. Exclusion from management was also unfair. Under O’Neill v Phillips, exclusion alone is insufficient where a reasonable offer is made, but no timely reasonable offer had been made here. A later reasonable offer would not alter the earlier unfair event.
6. Prejudice was substantial. It included unlawful loss of office, exclusion from company systems and financial information, and termination of the Consultancy Agreement contrary to its terms. Other alleged failings by Mr Hashmi did not materially reduce that prejudice.