Tosi Limited v 99 Hippos Limited & Anor

Relief under Companies Act 2006, s 994 requires conduct of the affairs of the company which is both prejudicial and unfair. A breakdown in relations, deadlock, cessation of trading or the absence of a no-fault corporate divorce does not itself establish unfair prejudice. The conduct must relate to the affairs of the petition company, and the court must assess whether the petitioner’s interests have suffered actual unfair prejudice. Where unfair prejudice is established but the company has no viable business or purpose and the shareholders cannot cooperate, a winding-up order under s 996 may be appropriate, particularly where an independent liquidator should investigate potential claims.

The proceedings comprised three petitions arising from the breakdown of the business relationship between Emma Fairclough and Robert Tillett. The first and second petitions concerned their respective interests in 99 Hippos Limited. The third concerned Jusho Limited and Finsbury Co Limited.

The petitions alleged exclusion from management, misuse or diversion of company funds, inter-company overcharging, interference with trading, failure to sign accounts and conduct said to have caused deadlock or cessation of business. The central questions were whether the alleged conduct was conduct of the affairs of the relevant company and whether it was unfairly prejudicial under s 994 of the Companies Act 2006, and, if so, what relief should be granted.

1. The first and second petitions failed. None of the pleaded allegations concerning 99 Hippos Limited established unfairly prejudicial conduct. Mr Tillett had not been excluded from management: his lack of involvement reflected his own choice and the parties’ interim arrangements. The CBILS loan was not shown to have caused unfair prejudice, and its proceeds were accepted to have been applied for 99H’s benefit.

2. The court applied the principles summarised in Grace v Biagioli [2005] EWCA Civ 1222. Unfairness is assessed against the legal and equitable background of the corporate structure. Conduct need not be unlawful, but it must be inequitable. An irretrievable breakdown in relations does not create a unilateral right of withdrawal or amount to no-fault corporate divorce under s 994.

3. The complaints concerning inter-company charges and payments involving 99H were not proved. The evidence did not establish overcharging, a knowingly wrongful withholding of profit share, or unfair prejudice caused by the £60,000 payment to Jambo. Conduct by persons acting for another group company did not, without more, constitute conduct of 99H’s affairs.

4. The third petition succeeded in part. Payments of £84,000 by Finsbury and £36,000 by Jusho to Jambo on 31 July 2020 were inadequately explained, appeared substantially to exceed the documented management charges, breached the spirit of the embargo on inter-company transfers, and constituted unfairly prejudicial conduct.

5. Applying s 996, the appropriate relief was ordinarily a winding-up order for Finsbury and Jusho. Both companies lacked viable business or assets, and the parties were incapable of cooperating or independently investigating potential claims. The court delayed final orders to allow consideration of a purchase of the shares for £1 and a possible amendment seeking winding up of 99H on the just and equitable ground.