Tosi Limited v 99 Hippos Limited & Anor

This was a first instance contested hearing of competing s.994 Companies Act 2006 petitions arising from the break‑down of a long standing commercial relationship within the Jambo group. The judge applied the established unfair prejudice principles derived from O'Neill v Phillips and Grace v Biagioli and emphasised that conduct relied upon must relate to the affairs of the company.

The court rejected the first petition (brought by Tosi) and the second petition (brought by Ms Fairclough) because the pleaded incidents (including alleged exclusion, misuse of a CBILS loan, diversion of income and overcharging by inter‑company management charges) were not proved to amount to unfairly prejudicial conduct of 99 Hippos. The court found that the CBILS loan had been used for 99 Hippos' benefit and that contemporaneous documents showed mutual knowledge of funding needs during the de facto split.

In the third petition (relating to Jusho and Finsbury) the court found some unfair prejudice in respect of certain transfers to Jambo on 31 July 2020 and concluded that the appropriate remedy was a winding‑up order for those two companies; final orders were delayed to give the parties the opportunity to consider the judgment and possible alternative resolutions.

Background and procedural posture:

• This judgment resolves three related petitions under s.994 of the Companies Act 2006 concerning 99 Hippos Limited (99H), Jusho Limited and Finsbury Co Limited arising from the breakdown of the relationship between two 50% shareholders/directors, Ms Emma Fairclough and Mr Robert Tillett.
• Tosi Limited (owned by Mr Tillett) presented the first petition seeking relief including an order that Ms Fairclough sell her shares in 99H or step down as director. Ms Fairclough presented the second petition against Tosi and the third petition relating to Jusho and Finsbury. The petitions raised a wide range of complaints including alleged exclusion from management, breaches of directors' duties, misappropriation of a CBILS loan, diversion of income via inter‑company charges and deliberate conduct to undermine trading.

Issues framed by the court:

• Whether Mr Tillett had been excluded from 99H.
• Whether Ms Fairclough entered into or misused the CBILS loan without knowledge or consent of Mr Tillett.
• Whether income had been diverted to new entities controlled by Ms Fairclough or to other group companies.
• Whether inter‑company charges and transfers benefitted Jambo at the expense of 99H, Jusho or Finsbury.
• Whether conduct of either party constituted unfairly prejudicial conduct under s.994(1) and what relief, if any, was appropriate.

Court’s reasoning and findings:

• The judge applied established unfair prejudice principles, noting that conduct must relate to the affairs of the company and be unfair in the equitable sense. The corporate arrangements, articles and any collateral understandings were to be taken into account.
• On exclusion: the court rejected Tosi's claim that Mr Tillett had been excluded from 99H. Historically he had entrusted day‑to‑day control to Ms Fairclough and the de facto split under agreed heads of terms from about September 2020 explained his lack of involvement.
• On the CBILS loan: the court found contemporaneous documents showed Mr Tillett knew 99H sought CBILS funding and was content that 99H should obtain funding once the de facto split left it financially independent. Although the loan proceeds were initially routed through Ms Fairclough’s personal account in tranches, disclosure of subsequent transfers and directors’ loan accounting demonstrated the funds were applied for 99H’s benefit; a pleaded misappropriation claim was not pursued at trial.
• On diversion and passing off: there was no persuasive evidence that Ms Fairclough traded her new company as 99H or diverted income from 99H to it; 99G (later Group Eleven) did not have a bank account until a year later and invoices/payments shown were to 99H.
• On inter‑company charges and alleged overcharging: the court concluded there was insufficient evidence to establish that Jambo charged 99H (or the other companies) more than market rates or that any such charging amounted to unfair prejudice; the complexities of group accounting, prior profit share arrangements and the discovery of a substantial internal fraud influenced the parties’ positions and explained many anomalies.
• On specific transfers on 31 July 2020: transfers from Jusho and Finsbury to Jambo on that date appeared to be unsupported by the contemporaneous invoices and spreadsheets and, in respect of those companies, the judge inferred unfairly prejudicial conduct. For 99H, the transfer of £60,000 to Jambo on the same date breached the spirit (though arguably not the letter) of an embargo on inter‑company transfers but did not amount to unfair prejudice in the circumstances.
• Relief: having found unfair prejudice in relation to Jusho and Finsbury, but noting both companies had little or no ongoing business and that the relationship between the shareholders was irretrievably broken, the judge considered a winding‑up order appropriate and proposed such orders, but delayed making final orders to permit the parties to consider the judgment and any agreed alternative (including an offer by Mr Tillett to sell his shares for £1).

Wider context: the court observed that winding‑up orders under s.996 are rare but may be appropriate where companies have no viable business or purpose and where deadlock and lack of cooperation make independent investigation and recovery best achieved through a liquidator.

This was a first instance determination. The court dismissed the first petition and the second petition for lack of proof of unfairly prejudicial conduct of 99 Hippos Limited. In the third petition the court found some unfairly prejudicial conduct in relation to Jusho and Finsbury (certain transfers on 31 July 2020) and concluded that the appropriate remedy was a winding‑up order for those two companies; the court delayed making final orders to allow the parties the chance to consider the judgment and to pursue any agreed alternative.