Queensgate Place Limited v Solid Star Limited (Liability Judgment)

The petitioner brought a petition under section 994 of the Companies Act 2006 alleging that the affairs of Solid Star Limited were being conducted in a manner unfairly prejudicial to the petitioner as a shareholder. The court found the petition well founded on liability. Key legal principles applied were the statutory unfair prejudice jurisdiction (s. 994 and s. 996 CA 2006) and the codified directors' duties in ss. 171–177 and s. 174 CA 2006. The judge found that SSL’s affairs had been conducted so as to prefer Viking and companies controlled by the Bhundia family over the petitioner, through (a) unequal repayment of shareholder loans, (b) disposal of properties to a company controlled by the respondent at undervalue and without securing payment, (c) the direction of a payment of £368,685 to Crane Court which was not shown to discharge SSL liabilities, and (d) entangling SSL in a separate Crane Court/Lazuli venture that produced a large judgment against SSL. The court held that Prakash breached multiple fiduciary duties and was dishonest in relation to the property transfers, the Crane Court payment and the Lazuli involvement; Minesh was found to have negligently breached his duties by failing to inform himself and to supervise. Remedies were adjourned for a further hearing to determine quantum and appropriate relief, with directions given for the next procedural steps.

This is a first instance petition under s. 994 Companies Act 2006 brought by Queensgate Place Ltd (QPL), beneficial owner of 50% of Solid Star Ltd (SSL), against SSL (in liquidation), Viking World Investments SA (Viking) and the directors Prakash and Minesh Bhundia. SSL had developed the John Howard Hotel in Kensington into 20 residential units; SSL is now in insolvent liquidation and a substantial judgment had been entered against it in separate litigation (the Lazuli judgment).

Nature of the application: a shareholder petition alleging that SSL’s affairs were being or had been conducted in a manner unfairly prejudicial to QPL. The petitioner sought orders under s. 996 CA 2006, principally a buy-out of QPL’s shares; the hearing before the judge addressed liability only, with remedies and quantum to follow.

Factual background (concise):

• QPL and Viking were beneficially 50:50 shareholders in SSL, but for unexplained reasons share registrations did not match beneficial ownership.
• Prakash ran the SSL affairs and had day-to-day control; Minesh was a director with a more limited role.
• There was a shareholders' agreement (2004) contemplating equal shareholder loans of £3.5m and parity in loan accounts and management fees.
• A 2017 agreement proposed division of remaining properties and balancing payments; subsequent events included sales of the remaining properties (some to companies connected to the Bhundia family), the raising of lending by PX1, payments routed through related companies, and SSL becoming liable under the Lazuli judgment.

Issues framed and decided:

• Whether the conduct complained of constituted acts or omissions of the company for the purpose of s. 994 CA 2006.
• Whether QPL had suffered prejudice and whether that prejudice was unfair.
• Whether directors (Prakash and/or Minesh) breached their statutory and fiduciary duties and, if so, whether any breaches were dishonest or negligent and causative of the prejudice.

Court’s reasoning (concise):

• The court applied the statutory framework for unfair prejudice and emphasised the relevance of the parties’ agreed terms and the codified duties in ss. 171–177 and s. 174 CA 2006.
• The judge found pervasive poor financial control, intermingling of funds across related companies and inadequate records. That conduct amounted to breaches of multiple directors’ duties by Prakash.
• On the specific complaints the court concluded that (i) Viking had introduced funds by way of a loan (procured through PHL) so that point failed, (ii) SSL had repaid or treated repayments in a manner favouring Viking and had not repaid loans pari passu, (iii) management fee issues were not established as unfair prejudice, (iv) several property disposals to PX1 were at undervalue and/or were not paid for in full and the proceeds were used to discharge liabilities unconnected to SSL (notably the Lazuli liabilities), (v) the payment of c.£368,685 by QPL to Crane Court was not shown to discharge liabilities of SSL and so was misapplied, and (vi) SSL’s involvement in the Crane Court/Lazuli venture caused significant prejudice by exposing SSL to a large judgment debt.
• The judge found Prakash dishonest in three respects (PX1 transfers and misuse of proceeds, the Crane Court payment and involving SSL in the Lazuli venture) and in breach of fiduciary duties on the other findings. He found that Minesh had been negligent and had abdicated his responsibilities as a director, such negligence causative (in part) of the unfair prejudice, though Minesh was not found dishonest.

Relief and procedure: the liability findings were made but relief was adjourned. The judge ordered procedural directions for a remedies stage hearing to determine quantum and the structure of any order (for example a buy-out under s. 996), invited participation by the liquidator of SSL, and kept in force existing freezing orders until the directions hearing.

This first instance petition under section 994 CA 2006 is upheld on liability. The court found that SSL’s affairs were conducted in a manner unfairly prejudicial to Queensgate Place Ltd in four principal respects: (1) unequal repayment of shareholder loans favouring Viking; (2) sale of multiple properties to PX1 (a company connected to Prakash) at undervalue and without collection of the full purchase price, with proceeds applied to liabilities unconnected to SSL; (3) the direction that QPL’s payment of c.£368,685 be made to Crane Court which was not shown to discharge SSL liabilities; and (4) involving SSL in the Crane Court/Lazuli venture that led to a large judgment against SSL. The judge held that Prakash breached multiple statutory fiduciary duties and was dishonest in relation to the PX1 transfers, the Crane Court payment and the Lazuli involvement. Minesh was found to have negligently breached his duties by failing to inform himself and supervise, and his failures were causative in part. Remedies and quantum were adjourned for further hearing; directions were given for the remedies stage and for participation by SSL’s liquidator.