Sally Ann Gibbins v John Peter Francis Tierney & Ors

The court allowed a section 994 Companies Act 2006 petition brought by a minority shareholder in a quasi‑partnership company. The judge found that the first and second respondents wrongfully excluded the petitioner from management from August 2020, misapplied company funds for their own benefit and diverted company business to a related vehicle. Those acts were held to be unfairly prejudicial and in breach of directors' duties under sections 172, 173, 174 and 175 of the Companies Act 2006.

As relief under section 996 CA 2006 the court ordered the first and second respondents to purchase the petitioner’s shares at fair value as at 1 August 2020, valuing 100% of the company as a going concern and applying no minority discount. The court granted permission to rely on a valuation expert and ordered the respondents to pay the petitioner’s costs, with an interim payment on account.

Background and parties. The petitioner was one of three equal shareholders and co‑directors in PHB Ethical Beauty Limited, a company formed from an earlier partnership. The first respondent is the petitioner’s son and the second respondent his partner. The petitioner provided all capital. From incorporation until August 2020 the parties shared management, and the petitioner managed finances and accounts.

Factual findings. The respondents caused the company to fund the purchase of a residential property through a special purpose vehicle controlled by them; used company funds for stamp duty, conveyancing and renovation; and, from August 2020, excluded the petitioner from management, changed the company’s registered office and diverted business to a newly incorporated company controlled by the respondents. The respondents also removed the petitioner from the bank mandate and repaid a Funding Circle loan without her consent. The respondents did not participate in the litigation and were debarred from defending the petition.

Procedural posture and relief sought. The petitioner presented an unfair prejudice petition under section 994 CA 2006 on 7 June 2022. She sought a buy‑out of her shares at fair value, on the assumptions of a willing buyer and seller, valuation as a going concern, no minority discount and adjustment to reflect the unfair prejudice.

Issues. The court framed liability issues under section 994 (whether company affairs were conducted in a manner unfairly prejudicial) and whether the respondents breached statutory duties (sections 172, 173, 174 and 175). Remedies issues included whether a buy‑out was appropriate, the valuation basis and the appropriate valuation date.

Reasoning and decision. Applying authorities on unfair prejudice and valuation, the judge found the company to be a quasi‑partnership and the respondents’ conduct to be unfairly prejudicial and in breach of their duties. The court held that the shares should be valued as if the prejudicial conduct had not occurred and, in fairness to the petitioner, selected 1 August 2020 as the valuation date because it was shortly before the exclusion and other prejudicial acts. The court ordered the respondents to buy the petitioner’s shares at fair value as at that date without any minority discount, granted permission to rely on the petitioner’s valuation expert, and ordered costs with an interim payment on account of 37,500 on account.

Wider context. The judgment applies established unfair prejudice principles, emphasising that in quasi‑partnerships a minority discount is not appropriate and that valuation may be fixed at an earlier date when necessary to put the petitioner in the position she would have occupied but for the misconduct.

The petition under section 994 was found to be well founded and succeeds. The court ordered that the first and second respondents purchase the petitioner’s three ordinary shares in PHB Ethical Beauty Limited at fair value as at 1 August 2020, valuing 100% of the company as a going concern and applying no minority discount, for the reasons that the respondents had wrongfully excluded the petitioner from management, misapplied company funds and diverted business to a related company in breach of their duties under sections 172, 173, 174 and 175 Companies Act 2006. Permission was given to rely on a valuation expert and costs were awarded with an interim payment on account.