Mohammed Saleem Khawaja v Stela Stefanova & Ors

The court considered rival interim applications made in unfair prejudice proceedings under the Companies Act 2006 and applications to vary or discharge an existing freezing injunction. Key legal principles applied included the court's power to grant injunctions where just and convenient (Senior Courts Act 1981 s.37), the statutory unfair prejudice jurisdiction under Companies Act 2006 s.994 and the range of remedies available under s.996, and the duty of directors under s.172. The judge treated the misappropriation of company assets, diversion of company business and repeated non‑compliance with prior orders (including contempt findings) as conduct likely to frustrate the freezing injunction and to constitute unfair prejudice.

Applying these principles the court found that the petitioner had a strong case and that interim relief was necessary to preserve the utility of the freezing injunction. The court granted an injunction preventing the respondent from opening any further bank accounts, accepted undertakings and ordered detailed disclosure and fortnightly business reporting from the respondent about BiotechnologiesUK Limited and Dermamed Solutions Limited. The respondent's applications to vary or discharge the freezing order, to obtain a mandatory injunction against the petitioner and to stay enforcement of costs were dismissed. The court declined adjournments and ordered costs to follow the event.

Background and parties

• The proceedings arise from an unfair prejudice petition brought by Mr Khawaja, who says he was made retrospectively a 50% shareholder and director of Dermamed Solutions Limited pursuant to an oral agreement with Ms Stefanova.
• The petition followed discovery that Ms Stefanova had diverted Dermamed’s business to BiotechnologiesUK Limited and had used company monies for her own purposes; freezing injunctions were granted and continued by the High Court.
• The First Respondent, Ms Stefanova, had previously been found to have given dishonest evidence and was the subject of contempt findings for failure to comply with court orders.

Nature of the applications

• The key contested applications were (i) the petitioner’s applications for information and to restrain the respondent from opening further bank accounts and to require business receipts to be paid into Biotech’s Barclays account; (ii) the respondent’s applications to discharge or vary the freezing injunction and to stay enforcement of a costs order; and (iii) other ancillary relief including a proposed interim mandatory injunction.

Issues framed

1. Whether to restrain the respondent from opening further bank accounts and to channel business receipts into a specified account.
2. Whether to order disclosure of documents and information about the respondents’ assets and business dealings.
3. Whether to limit the respondent’s personal drawings.
4. Whether to vary or discharge the freezing injunction.
5. Whether to grant a mandatory injunction compelling the petitioner to authorise payments from Biotech’s account.
6. Whether to stay enforcement of Roth J’s costs order made on 8 September 2023.

Court’s reasoning and decision

• The judge reviewed the legal framework for interim injunctions (Senior Courts Act 1981 s.37; common law principles including the higher threshold for mandatory relief) and the statutory unfair prejudice framework (Companies Act 2006 ss.994 and 996 and the director’s duty under s.172).
• The court took account of prior findings against the respondent: an earlier County Court judgment favourable to the petitioner on the existence of the agreement; findings that the respondent had been dishonest; contempt findings for failure to comply with disclosure and freezing orders; and the secret opening of multiple bank accounts and use of funds.
• Given that history the judge concluded there was a serious question to be tried and a high degree of assurance of the petitioner’s success on the merits of the unfair prejudice claim at least as to misappropriation and diversion of business, and that interim relief was necessary to prevent further dissipation and to give effect to the freezing injunction.
• The court therefore prohibited the respondent from opening further bank accounts, required specified disclosure (including historic and ongoing customer and transaction details and information about the Revolut account), accepted undertakings about not opening further Biotech/Dermamed accounts and ordered fortnightly reporting, but dismissed the respondent’s applications to discharge or vary the freezing order, to obtain a mandatory injunction against the petitioner and to stay enforcement of the costs order.

Subsidiary findings: the judge found the respondent’s explanations were inconsistent and unlikely to be accepted by the trial judge given credibility findings, that appointing a receiver could be avoided if disclosure and reporting were ordered, and that the respondent’s applications were often misconceived or unsupported by evidence.

This was a first instance disposal. The court granted parts of the petitioner’s applications and dismissed the respondent’s applications. Specifically, the court prohibited the respondent from opening any further personal bank accounts, required extensive disclosure and ongoing reporting about Biotech and Dermamed to give effect to the existing freezing injunction, and dismissed the respondent’s applications to vary or discharge the freezing order, to obtain a mandatory injunction compelling the petitioner to authorise payments, and to stay enforcement of a costs order. The rationale was the respondent’s proven dishonesty, multiple breaches and contempt findings undermining the freezing order and the clear need to protect company assets pending determination of the unfair prejudice petition.