Mohammed Saleem Khawaja v Stela Stefanova & Ors

In unfair prejudice proceedings, the court may grant interim injunctive relief under Companies Act 2006, sections 994–996, to protect company assets and make the petition effective. The ordinary injunction principles require modification because damages are not an available remedy to the petitioner. A mandatory injunction requires a high degree of assurance that the applicant will succeed at trial.

The court has a wide and flexible remedial jurisdiction. It may require information about assets and business dealings where that is necessary to police a freezing order. Breach of directors’ duties or misappropriation of company assets may constitute unfair prejudice without proof of financial loss. An injunction cannot be granted in the abstract: there must be an underlying cause of action.

The petitioner, a participant in a joint venture conducted through Dermamed Solutions Limited, brought unfair prejudice proceedings against his former business partner and two companies. The proceedings followed earlier County Court litigation in which he established the existence of an agreement entitling him to a 50% shareholding.

Four applications were before the court. They concerned restrictions on further bank accounts, disclosure of personal and business assets and transactions, variation or discharge of a freezing order, an interim mandatory injunction relating to business expenses, and a stay of enforcement of a costs order. The central issues were whether the requested relief was necessary and proportionate to preserve company assets and give the freezing order practical efficacy, and whether the respondent’s applications had a proper legal basis.

1. Interim injunction. The court accepted undertakings that the first respondent would not open further accounts in the companies’ names and would pay commercial receipts into the specified Barclays account. A further injunction prohibiting her from opening any more bank accounts was granted. Her history of contempt, dishonesty, secret accounts and unexplained financial gaps made the order necessary to protect the companies’ assets and preserve the efficacy of the freezing order.
2. Applicable principles. The jurisdiction arose under section 37 of the Senior Courts Act 1981 and sections 994–996 of the Companies Act 2006. The ordinary American Cyanamid approach required adaptation because damages were unavailable as a remedy for the petitioner. For a mandatory injunction, the applicant had to show a high degree of assurance of success at trial. The petitioner satisfied that threshold because he had already established the agreement and had a strong case concerning diversion of the business, distributions and misuse of company funds.
3. Unfair prejudice and remedies. Breach of statutory or fiduciary duties generally indicated unfair prejudice. Financial loss was not essential where breach of duty itself caused prejudice. Misappropriation of company assets by those controlling the company could also constitute unfair prejudice. The court’s powers under sections 994–996 were wide and flexible, and the relief had to be fashioned to cure the prejudice identified.
4. Disclosure. Orders requiring information about assets, customers, transactions and business expenses were justified under section 37 and CPR r.25.1(1)(g). They were necessary to determine whether business receipts were being accounted for, whether expenses were legitimate, and whether the freezing order was being obeyed.
5. Respondent’s applications. The application for an injunction compelling the petitioner to authorise company payments had no underlying cause of action and was unsupported by adequate evidence. The freezing order required assistance for living and legal expenses, but not for the companies’ expenses. The application to stay enforcement of the costs order failed because that order was separate from the appealed third-party debt order and the requirements of CPR r.83.7(4) were not met.
6. The petitioner’s applications were granted in the terms set out in the judgment. The respondent’s applications were dismissed, with costs following the event.

Not stated in the judgment as an appellate history. The court dealt with applications arising in ongoing unfair prejudice proceedings.