Neil Worsley v Benjamin Gould & Ors

In an unfair-prejudice petition, the court must identify the basis on which the company’s affairs were agreed to be conducted and determine whether the impugned management conduct caused prejudice to the petitioner’s interests as a member, and whether that prejudice was unfair.

A director breaches duties under Companies Act 2006 ss 171, 172 and 175 by using company powers for an improper purpose, failing to act in the company’s interests, or placing personal or connected-company interests in conflict with those of the company. The court may determine liability separately from remedy. Insolvency does not automatically prevent a member from pursuing an unfair-prejudice petition, although the nature of the protected interest and the practical effect of any remedy remain material.

The petitioner and the first respondent formed an equal joint venture through Drop The Hammer Limited. The petitioner alleged that the respondent had agreed to transfer the business and assets of Gas Monkey Limited to the company, but instead caused Gas Monkey to continue trading, diverted stock and cash, created misleading documents for a funder, and entered transactions benefiting himself and Gas Monkey.

The company entered administration and subsequently liquidation. The trial was confined to liability, with remedy reserved for a later hearing. Claims were also advanced against the respondent’s wife, who was neither a shareholder nor director of the company. The central issues were the parties’ agreement or understanding, whether the alleged conduct breached statutory and fiduciary duties or caused unfair prejudice, and whether the claims against the wife were established.

1. Agreement or understanding. The broad understanding was that Gas Monkey’s business and assets would transfer to Drop The Hammer when the latter began trading, with the value of tangible assets credited to the first respondent’s directors’ loan account, and that Gas Monkey would cease trading save for limited arrangements concerning liabilities, prepaid stock, SeaDoos and stock funded by DFC. The arrangement was not wholly binary because practical issues and the absence of a shareholders’ agreement created some ambiguity.
2. Evidence. Findings of fact were made by reference to reliable contemporaneous documents, known and probable facts, and witness evidence tested against that material. The court applied the guidance in Re Mumtaz Properties Ltd, Gestmin SGPS S.A. v Credit Suisse Limited, Kogan v Martin, Kimathi v The FCO and Re Parsonage (deceased). Serious allegations did not alter the civil burden or standard of proof, although more cogent evidence could be required.
3. Mr Gould’s conduct. The creation of false invoices and petty-cash vouchers to misrepresent the timing of sales to DFC breached the duties under Companies Act 2006 ss 172 and 171. The court applied the objective test in Re HLC Environmental Projects Ltd because there was no evidence of actual consideration of the company’s interests. Mr Gould also breached ss 171, 172 and 175 by causing the company to enter an undisclosed cross-guarantee benefiting Gas Monkey, inflating the value attributed to a Volkswagen van, and causing Gas Monkey to trade beyond the limited scope of the parties’ understanding.
4. Stock diversion was proved for specified items, including items 1, 7, 8 and 14–20 in the closing schedule, but not for the remaining allegations. The allegation concerning invoice payments received into Gas Monkey’s account was not proved. A diversion of £18,779 in cash was proved, but the wider cash and expenses allegations were not.
5. Mrs Gould. The claims that she assisted breaches or knowingly received company property were dismissed. The evidence did not establish sufficient knowledge, participation or dishonest assistance. Relief against a non-shareholder and non-director under s 994 was described as necessarily limited, and the evidence fell well short of establishing the necessary contribution to unfairly prejudicial conduct.
6. Remedy and disposition. The petition was dismissed as against Mrs Gould. Liability findings against Mr Gould were reserved for a further trial addressing whether the conduct caused unfair prejudice, the effect on the company and the petitioner’s shares, and any relief under ss 994–996. A consequentials hearing was to be arranged if required.

This was a first-instance liability judgment. No prior appellate decision was stated. A further trial was directed to determine remedy, if any, against Mr Gould.