David Victor Garofalo v David Adrian Crisp & Ors

[2023] EWHC 2625 (Ch)

Case details

Case citations
[2023] EWHC 2625 (Ch)
Court
High Court (Insolvency and Companies List)
Judgment date
20 October 2023
Judgment text

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Subjects
Insolvency Company law Unfair prejudice petitions
Keywords
section 994 petition interim relief director removal board reconstitution imaging order passport order ex parte application sanctions breach unfair prejudice cross-undertaking in damages
Outcome
application granted
Judicial consideration

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Summary

Interim relief under Companies Act 2006 s 994 may include temporary removal of directors and appointment of replacements where the court has jurisdiction under s 37 of the Senior Courts Act 1981 and considers the relief just and convenient.

The ordinary interlocutory injunction principles apply by analogy. The applicant must show a serious issue, and the court must assess the adequacy of damages, the balance of convenience, the risk of frustrating final relief, and the least intrusive effective order. Imaging orders require an extremely strong prima facie case, very serious potential damage, and a real risk that incriminating material will be destroyed before an inter partes hearing.

Factual background

The applicant intended to present a petition under ss 994 and 996 of the Companies Act 2006, alleging that the affairs of five English companies had been conducted in a manner causing unfair prejudice. He sought urgent ex parte interim relief, including removal of a director, appointment of replacement directors, imaging of electronic devices, delivery up of company records, injunctive restrictions and a passport order.

The allegations principally concerned continued exports of luxury perfumes to Russia despite sanctions and an alleged agreement to stop such trade. The respondents were not represented. The central issues were whether there was a strong prima facie unfair-prejudice case, whether the proposed interim measures were within the court’s jurisdiction, and whether the tests for interlocutory, imaging and passport relief were satisfied.

Held

  1. Unfair prejudice. The applicant established an exceptionally strong prima facie case that the first respondent had caused the companies’ products to be sold into Russia in breach of the Russia Agreement, the Relationship Agreement, fiduciary duties, statutory directors’ duties and the Russia (Sanctions) (EU Exit) Regulations. The conduct was unfair and had materially prejudiced the companies by threatening severe reputational damage and their viability.
  2. A dispute-resolution provision requiring discussions over 12 days did not apply to urgent ex parte relief. Alternatively, a term permitting urgent court applications was implied by obviousness, reasonableness and business efficacy.
  3. Interim board relief. Section 37 of the Senior Courts Act 1981 gave jurisdiction to grant interim relief in support of a s 994 petition, including temporary removal of directors and appointment of others. Such relief is rare, but the relevant test is whether it is just and convenient. The court should ordinarily limit intrusion to what is necessary and appropriate.
  4. The principles in American Cyanamid applied by analogy. There was a serious issue to be tried and a very high degree of assurance that the petition would succeed. Damages would not adequately protect the applicant or the business, whereas the first respondent could be compensated under the cross-undertaking. The balance of convenience favoured temporary board changes, which were less intrusive and more effective than appointing a receiver. The orders were justified until the return date or further order.
  5. Imaging order. The search-order test was appropriate: an extremely strong prima facie case, very serious potential damage, and clear evidence that incriminating material was in the respondents’ possession with a real possibility of destruction before an inter partes hearing. Those requirements were met. Imaging was a preservation measure and made a traditional search order unnecessary.
  6. Records and passport. Preservation and delivery-up orders were just and reasonable under s 37 and supported by the applicant’s common-law right as a director to inspect company books and records. A passport order was reasonable and necessary to support the imaging and ancillary orders because there was a real risk that the first respondent would leave the jurisdiction. The relief was proportionate and conditional upon compliance.
  7. The application was properly heard privately and without notice because advance publicity risked destruction of evidence, evasion of service and frustration of the orders. The orders were made, subject to the applicant’s fortified cross-undertaking in damages. A subsequent consent order discontinued the passport order and varied the compliance provisions.

The court’s approach to earlier authorities

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