Joanne Couch v Kevin Fox & Anor

Unfair prejudice requires proof that the impugned conduct concerns the company’s affairs, causes prejudice to the petitioner as a member, and is unfair. In a quasi-partnership, fairness may reflect informal understandings and equitable constraints, including an expectation that directors comply with their statutory duties. Exclusion from management is not automatically unfair; its justification and whether a reasonable offer to purchase the excluded member’s shares exists are relevant. A member’s entitlement to repayment of a director’s loan is distinct from an entitlement to salary and may prejudice the member only in the capacity of director. Where persistent obstruction and exclusion unfairly damage a quasi-partnership relationship, a share purchase and removal of a director may be appropriate relief.

Joanne Couch and Kevin Fox were equal shareholders and directors of Kent Conversions Ltd, a quasi-partnership established to acquire and let property. Following the breakdown of their personal and business relationship, each alleged that the other had unfairly prejudiced the conduct of the company’s affairs.

Ms Couch complained principally of obstruction of payments and business decisions, interference with access to the business, occupation of company property, a disputed invoice and unauthorised expenditure. Mr Fox counterclaimed regarding exclusion from management, access to records, expenditure, loan-account entries, company income and use of company property. The central issues were whether the statutory requirements for relief were met and what remedy should follow.

1. Statutory requirements. The petition succeeded, except in relation to allegations that were not proved or did not amount to unfair prejudice. The court applied the three requirements under Companies Act 2006, s 994: company-related acts or omissions or conduct of the company’s affairs; prejudice to the petitioner’s interests as a member; and unfairness.
2. Prejudice and fairness. Prejudice need not be limited to share-value loss and may include interference with management rights or other financial interests sufficiently connected with membership. Fairness is to be applied judicially and rationally. In a quasi-partnership, the relevant terms may arise from articles, agreements, common understandings or equitable constraints. Those terms may include an implied commitment by director-members to comply with Companies Act 2006, ss 171–177.
3. Findings. Mr Fox’s persistent delay in approving expenses, delay in agreeing a remortgage, removal of the business telephone and changing of passwords impeded the company’s operation and caused unfair prejudice. The disagreement about the online travel agency was a commercial difference which the court could not resolve. Ms Couch had no entitlement to salary because no agreement, board resolution or employment contract supported it. Her director’s loan was repayable on demand, but the resulting prejudice was suffered in her capacity as director, and the company was insolvent. The disputed invoice caused prejudice by delaying the filing of accounts, although the allegation that it was fabricated was overstated.
4. Counterclaim and relief. Mr Fox’s counterclaims were dismissed. The proposed relief was that Ms Couch purchase Mr Fox’s shares, valued as at 31 March 2021 on the stated loan-account assumption; Mr Fox be removed as director; valuation be undertaken by a single joint expert; and the petition be listed for further directions regarding valuation.

First-instance decision. No appellate history was stated in the judgment.