Zedra Trust Company (Jersey) Limited v THG Plc & Ors.

This is a first-instance ruling on an application for permission to re-amend a petition under section 994 of the Companies Act 2006 alleging unfairly prejudicial conduct. The court applied the well-established test for permission to amend: an amendment must disclose a case with a real as opposed to a fanciful prospect of success and be supported by sufficient evidence to found the pleaded inferences. The proposed First Complaint sought to advance a contractual claim that pre-emption rights in article 3.2 were not validly disapplied in relation to eight share allotments and, on that basis, to seek equitable compensation from the directors for alleged bad faith. The judge concluded that, on the available evidence (including the Rejoinder Disclosure and Late Disclosure of board minutes and Companies House filings), Zedra had no sufficiently substantial evidential foundation to show that the pre-emption rights were not validly disapplied in any of the eight allotments and no realistic prospect of proving bad faith by the directors. Permission to re-amend in respect of the First Complaint was therefore refused. The proposed Second Complaint (an allegation that Zedra was wrongly excluded from a small bonus issue on 11 July 2016) was found to meet the merits threshold and permission to re-amend to plead that complaint was granted; limitation arguments based on the Limitation Act 1980 and s.35 were rejected as a basis to refuse the amendment.

Background and parties:

• Zedra issued a petition under section 994 of the Companies Act 2006 on 7 January 2019 alleging unfairly prejudicial conduct by The Hut Group Limited (changed later to THG Plc) and certain directors. Zedra held a minority holding which had reduced over time following multiple share issues and an IPO. The petition originally pleaded several heads including interference with co-sale rights, diminution of holding through allotments and failures to provide contractual information (the Information Obligation).
• Procedural history: the respondents applied to strike out in 2019 (refused by HHJ Eyre QC on 10 February 2020). The respondents appealed and the Court of Appeal allowed the appeal in part on 15 June 2021, striking out some relief but remitting the reduced petition for case management and permitting a possible amendment of the petition.

Nature of the application: Zedra sought permission to re-amend the petition to add two principal new pleaded complaints: (1) that, in respect of eight of ten disputed share allotments between February 2016 and May 2018, the directors failed properly to disapply Zedra’s pre-emption rights under article 3.2 so that Zedra should have been offered participation, and (2) that Zedra was wrongfully excluded from a bonus share issue on 11 July 2016. Relief sought included declarations regarding the Information Obligation and equitable compensation payable by all directors in respect of losses said to flow from the missed opportunity to participate in the IPO.

Issues framed:

• Whether the proposed amendments disclose a case with a real prospect of success (not merely arguable) supported by sufficient evidence and particulars.
• Whether, even if a technical non-compliance with the Articles could be established, Zedra could show deliberate bad faith or improper purpose by the directors so as to justify equitable compensation against them personally.
• Whether permitting the Second Complaint would improperly circumvent limitation rules under the Limitation Act 1980 or s.35.

Court’s reasoning and outcome:

• The court applied the established principles from the authorities cited (the requirement that an amendment be more than merely arguable; the need for a prima facie evidential foundation; avoidance of a mini-trial).
• On the evidence before the court (including Rejoinder Disclosure, Companies House filings and late board minutes), the judge examined each of the eight disputed allotments. For most allotments Zedra relied on inferences from alleged lack of disclosure and late production of documents. The contemporaneous documents, however, tended to show valid mechanisms for disapplying pre-emption rights (employee incentive schemes, board-approved allotments subject to valuation provisos, or shareholder-majority consents), and Companies House returns corroborated allotments. The court found no sufficient evidential foundation to support the pleaded inference that pre-emption rights were not validly disapplied in any of the eight allotments.
• Even if a technical invalidity had been proved for any allotment, the judge explained that relief against the directors personally required proof of bad faith or improper purpose. Given the commercial context (large capital raises at substantial premiums and no pleaded under-pricing or lack of commercial purpose), there was no realistic prospect of establishing deliberate misconduct by the board as to the allotments. Accordingly, permission to re-amend to plead the First Complaint was refused.
• The Second Complaint (wrongful exclusion from a bonus issue on 11 July 2016) was found to meet the merits threshold and permission to re-amend was granted. The court rejected the respondents’ argument that permitting the amendment would be an improper attempt to evade limitation rules, holding that an unfair-prejudice petition is not a statutory claim subject to a fixed statutory limitation period in the way conventional claims are, and that delay and limitation issues are matters for the court’s discretion on remedy at trial.

Wider context: The judgment reiterates the reluctance of courts to permit amendments that are unsupported by evidential material and the necessity for petitioners seeking relief against directors to demonstrate a realistic prospect of bad faith where equitable relief against individuals is sought. It also confirms that delay in bringing a s.994 petition is a discretionary factor to be considered at remedy stage and is not categorically defeated by ordinary limitation rules.

The court refused permission to re-amend the petition in respect of the First Complaint (alleging invalid disapplication of pre-emption rights in eight share allotments and seeking equitable compensation from all directors), concluding there was no sufficiently substantial evidential basis and no realistic prospect of proving bad faith by directors. The court granted permission to re-amend in respect of the Second Complaint (the alleged wrongful exclusion from a bonus share issue on 11 July 2016). The respondents' limitation-based objection to the Second Complaint was rejected; issues of delay and prejudice remain matters for the court’s discretion at trial.

Petition issued 7 January 2019. Strike-out application by respondents dismissed by HHJ Eyre QC on 10 February 2020. The respondents appealed; the Court of Appeal handed down judgment on 15 June 2021 (allowing the appeal in part) and remitted the reduced petition to the High Court for case management and any application to amend.