Benjamin Karl Lakey v Nathan Levi Ashley Jordan Macabuag & Ors

Under section 994 of the Companies Act 2006, prejudice must be substantial and must be unfair. A procedural defect is insufficient where proper compliance would have produced the same result.

Quasi-partnership is only a shorthand for extra-documentary rights. After a substantial external investment governed by detailed constitutional and contractual documents, alleged informal rights require careful scrutiny.

Comprehensive leaver provisions may apply when a founder ceases one relevant role, even if the founder remains a director. Gross misconduct is fact-sensitive and depends on matters including the company, the director’s role and the degree of trust required. A fair independent investigation need not invariably be followed by a further disciplinary hearing.

The petitioner was a founder, director, employee and shareholder of Mitt Wearables Limited. Following a breakdown in the relationship between the founders, he was suspended, independently investigated and dismissed. His ordinary shares were then treated as converted into deferred shares under the company’s Articles.

He petitioned under section 994 of the Companies Act 2006, alleging unfair prejudice arising from his removal, the share reclassification, the investigation process, the conduct of the directors and the transfer of assets and intellectual property to Koalaa Limited.

The court determined whether the leaver provisions applied, whether the removal and investigation were unfair, whether the respondents’ conduct caused unfair prejudice, and whether relief should be granted.

1. The petition was dismissed. The petitioner failed to establish conduct which was both prejudicial and unfair for the purposes of section 994 of the Companies Act 2006.

2. The Articles and the subscription and shareholders’ agreement formed a comprehensive code governing departure and share reclassification. The leaver provisions were expressed comprehensively and applied where the petitioner ceased to hold the relevant role, even though he might remain a director, employee or consultant. The provisions therefore operated on the facts to make him a Bad Leaver.

3. The alleged quasi-partnership and legitimate expectation added nothing to the express contractual and constitutional arrangements. The first funding round introduced professional investors, board rights and reverse vesting. It displaced any basis for imposing additional informal rights inconsistent with those documents.

4. The court accepted that the petitioner’s unauthorised access to the company’s email and Google Drive, including confidential medical, financial and intellectual-property information, constituted gross misconduct and serious breaches of his duties as employee and director. The conduct breached sections 171 to 175 of the Companies Act 2006.

5. The conflict and patent allegations were not themselves serious breaches. The late board pack was minor. The circulation of altered draft minutes and disclosure of confidential information to a non-professional adviser were breaches, but the overall conduct relied upon by the company was sufficient to justify the leaver consequences.

6. The investigation was conducted by an independent specialist barrister who considered the evidence and gave the petitioner an opportunity to respond. Fairness did not require a further disciplinary process where the investigation was bona fide, procedurally regular and a further process would have been otiose. The defective formalities in the attempted removal as director did not prevent the petitioner from falling within the leaver provisions or prevent later removal under section 168.

7. The transfer of assets and intellectual property to Koalaa was a commercially rational attempt to preserve the business after funding collapsed. It did not establish unfair prejudice.