Neil Worsley v Benjamin Gould & Ors

The petitioner presented a petition under s.994 of the Companies Act 2006 alleging that the affairs of Drop The Hammer Limited were conducted in a manner unfairly prejudicial to him as a member. The court determined that the core commercial understanding between the petitioner and the first respondent (Mr Gould) was that the business and assets of Gas Monkey Limited would be transferred to the Company when the Company commenced trading and that Gas Monkey would, save for limited exceptions, cease to trade.

The judge found on the balance of probabilities that the first respondent had breached his statutory fiduciary duties (including s.171, s.172 and s.175 CA 2006) in a number of respects: causing false documentation to be prepared in relation to DFC funding arrangements; causing the Company to enter into a cross-guarantee with DFC without the petitioner’s knowledge; arranging an inflated transfer value for a Volkswagen van so as to credit his director’s loan account; diverting certain items of stock sold by Gas Monkey that had been paid for by or treated as paid for by the Company; and receiving at least one cash receipt of £18,779 that was not accounted for to the Company. The judge found the evidence on other alleged diversions of cash and certain missing stock items to be insufficient.

The petition against the fourth respondent (Mrs Gould) was dismissed: the judge found insufficient evidence that she knowingly assisted in wrongdoing or received company monies in breach of duties. Remedies were not decided and were reserved for a further trial on remedy/quantum.

Background and parties: Drop The Hammer Limited (the Company) was incorporated as a 50:50 joint venture between Mr Worsley and Mr Gould. The petitioner advanced significant funds and the business commenced trading in May 2021. The Company later entered administration and then creditors’ voluntary liquidation. The petition under s.994 CA 2006 was presented on 29 November 2021. Respondents were the first and fourth respondents (Mr and Mrs Gould), Gas Monkeys Ltd (insolvent and in liquidation) and the Company.

Nature of the claim and relief sought: The petitioner sought relief under s.994 CA 2006 for unfairly prejudicial conduct, asking (alternatively) for an order that the respondents purchase his shares at a valuation reflecting what they would have been worth absent the complained conduct, or for contribution/equitable compensation to the Company or to him personally.

Procedural posture: The trial was directed at liability only; remedy was reserved for a subsequent hearing. Experts on valuation had prepared reports but these were not put into evidence at the liability trial and were effectively ignored for the liability findings.

Issues framed by the court:

• What was the basis of the agreement or understanding between Mr Worsley and Mr Gould concerning the transfer of GML’s business and assets to the Company?
• Did Mr Gould’s conduct amount to the affairs of the Company being conducted in a manner unfairly prejudicial to the petitioner as a member?
• Did Mrs Gould knowingly assist or receive monies that ought to have been accounted for to the Company?

Court’s reasoning and findings: The judge applied orthodox evidential principles emphasising contemporaneous documentary evidence and inherent probabilities alongside witness credibility. The court found that, in broad terms, the parties had agreed that the business and assets of GML would transfer to the Company when it began to trade, with limited qualifications to address pre-existing liabilities and certain stock (for example, pre-paid SeaDoo stock and DFC-funded stock). On credibility the judge preferred the petitioner’s evidence on key points and found Mr Gould less reliable in a number of respects.

The court found on the balance of probabilities that Mr Gould had:

• caused false invoices/petty-cash vouchers to be created to misrepresent sales dates to DFC (breach of duties under s.171 and s.172);
• caused the Company to enter a DFC cross-guarantee without the petitioner’s knowledge (breach of s.171 and s.175);
• inflated the value of a Volkswagen van transferred to the Company so as to credit his director’s loan account (breach of duties);
• caused certain items purchased by (or treated as purchased by) the Company to be dealt with through GML and not accounted to the Company (a subset of stock items were made out on the evidence);
• personally received at least one cash receipt of £18,779 that was not accounted to the Company.

However, many allegations (including some missing stock and large cash-sum allegations, and some expense/drawing claims) were not proved on the evidence. The judge dismissed the petition as against Mrs Gould for lack of proof that she knowingly assisted or participated. The question of relief under s.994 (including valuation and causation issues) was left for a further trial.

This was a first-instance liability judgment. The court held that the petition is dismissed against the fourth respondent (Mrs Gould). Against the first respondent (Mr Gould) the court found a number of allegations of unfairly prejudicial conduct proved on the balance of probabilities, namely breaches of statutory fiduciary duties (including s.171, s.172 and s.175 CA 2006) in respect of falsified documentation to a funder, entering the DFC cross-guarantee without the petitioner’s knowledge, inflating the VW van transfer value, diversion of specific stock items and at least one unaccounted cash receipt of £18,779. The court declined to determine remedy or quantify loss at this stage and ordered a further trial/directions on remedy and consequential matters.