Benjamin Karl Lakey v Nathan Levi Ashley Jordan Macabuag & Ors

This is a petition under section 994 Companies Act 2006 for unfair prejudice. The court held that the petitioner had not established that the company’s affairs had been conducted in a manner unfairly prejudicial to him. The judge upheld key legal principles: a petitioner must show substantive unfair prejudice (s.994) and relief is discretionary under s.996; the court will scrutinise quasi-partnership/legitimate-expectation claims against the formal constitutional documents (articles and shareholders’ agreement); and detailed "leaver" provisions in the articles/SSA will normally be effective to govern post-exit share re-characterisation.

On the facts the court found that an independent investigation (the "Berry Report") properly addressed a number of allegations and, critically, that the petitioner had committed gross misconduct by gaining unauthorised access to Mitt’s Google Drive during suspension. That conduct (together with other serious breaches identified in the report) justified dismissal and engaged the Bad Leaver provisions in the articles, converting the petitioner’s ordinary shares into deferred shares. The court rejected the petitioner’s broader conspiracy/"scheme" case, and his claims of a continuing quasi-partnership or enforceable extra-documentary entitlement beyond the articles and the SSA.

Background and procedural posture. The petitioner brought an unfair prejudice petition under section 994 Companies Act 2006 following his suspension and subsequent dismissal from Mitt Wearables Limited. The petition challenged the investigation and dismissal process, alleged breaches of fiduciary and contractual duties by the respondents, alleged appropriation of Mitt’s business to a newly incorporated vehicle (Koalaa Limited), and sought relief available under s.996 CA 2006.

Nature of the claim / relief sought. (i) The claim was an unfair prejudice petition complaining of wrongful exclusion from management, wrongful removal as employee and director, and unlawful recharacterisation of the petitioner’s shares to Deferred Shares (Bad Leaver treatment). It also asserted breaches of fiduciary/contractual duties and complained of the transfer/licence of Mitt’s assets and business to Koalaa.

Issues framed by the court. (ii) The primary issues were:

• Whether the petitioner’s suspension, investigation and dismissal were unfairly prejudicial conduct under s.994;
• The legal effect and proper interpretation of the articles and the subscription/shareholders’ agreement (SSA), in particular the Leaver/Bad Leaver/Good Leaver provisions;
• Whether Mitt (or its directors) breached fiduciary or contractual duties by diverting assets/opportunities to Koalaa;
• Whether there existed a quasi-partnership or equitable "legitimate expectation" protecting the petitioner from the operation of the formal documents;
• Whether the independent investigator’s process and report were bona fide and fair; and whether the petitioner’s conduct (notably the unauthorised access to company systems) amounted to gross misconduct justifying dismissal and Leaver consequences.

Court’s reasoning and findings. (iii) The court found the following major points relevant to disposal:

• The Leaver provisions in the articles and the SSA formed a comprehensive code for what happens on cessation of employment/consultancy/directorship. Those provisions are to be respected and, on their true construction, apply where an individual "ceases to be" an employee, consultant or director; discretionary board waivers exist but are not guaranteed.
• The petitioner’s claim to a surviving quasi-partnership or extra-documentary entitlement was rejected: the SSA contained comprehensive clauses (including an entire-agreement clause and an express statement that the SSA and Articles superseded previous arrangements) and professional outside investors had altered the character of the company; it was therefore inappropriate to overlay equitable partnership-type duties inconsistent with the documents.
• The independent investigation by an external barrister was a bona fide and properly conducted inquiry. The Berry Report identified multiple serious breaches by the petitioner in relation to (among other matters) confidentiality, the handling of board materials and communications, and most importantly the unauthorised access to the company Google Drive while suspended. The court treated the unauthorised access as gross misconduct breaching both employment and fiduciary duties.
• The petitioner’s more elaborate conspiracy/"scheme" narrative advanced in the pleadings was not sustained by the evidence and was abandoned in trial; the alternative explanation of a breakdown of the founders’ relationship, investor concern and the consequent decisions taken by the board and investors was accepted as realistic.
• Given the seriousness of the petitioner’s breaches and the company’s fragile financial position (limited runway, need for further funding), the board’s and investors’ decisions (including the Licence/asset transfer to Koalaa as a means to preserve the business and staff and to create an investable trading vehicle) were not shown to be unlawful or unfairly prejudicial.

Outcome. The petition was dismissed.

The petition is dismissed. The court concluded that the petitioner had committed serious breaches of duties, including gross misconduct by obtaining unauthorised access to Mitt’s Google Drive while suspended, and that the company’s Leaver provisions applied to recharacterise his shares. The independent investigation was treated as a bona fide exercise and the petitioner’s broader allegations (including a pre-meditated scheme and a continuing quasi-partnership entitling him to override the formal constitution) were not made out. Given the petitioner’s conduct and Mitt’s commercial and funding position, relief under s.996 was not warranted.