Dean Joseph Banfield v Paul Robert Edwards & Ors (Re Brand Evolution Ltd)

This was a first instance trial of an unfair prejudice petition brought under s.994 of the Companies Act 2006 alleging that the affairs of Brand Evolution Limited were conducted in a manner unfairly prejudicial to the petitioner, Mr Dean Banfield. The court found that the company was a quasi‑partnership, such that equitable considerations could in principle constrain the exercise of legal rights. The petitioner failed to prove a binding shareholders' agreement or a binding exit (buy‑out) agreement: contract and estoppel claims were dismissed on the balance of probabilities. The remaining unfair prejudice allegations (refusal to buy out shares, exclusion from management, failure to call shareholder meetings, improper allotment of shares, and excessive dividends/salaries) were considered against the articles, the directors' duties (including sections 171, 172 and 175) and contemporaneous documents; none established unfair prejudice requiring relief. The allotment of alphabet shares to retain a key employee and the post‑departure dividend payments were held to be commercially justified and not excessive in breach of the duties.

Background and procedural posture

The petitioner, one of five founders who acquired the assets of a predecessor business in 2010 and became directors and shareholders of Brand Evolution Limited, presented an unfair prejudice petition under s.994 Companies Act 2006. The trial addressed liability only and took place February–March 2024. The judge noted substantial costs and observed that the case might usefully have been the subject of a Chancery Financial Dispute Resolution appointment.

Nature of the claim

• The petition alleged, inter alia, that the respondents (co‑founders and director‑shareholders) had: refused to perform an agreed exit buy‑out of the petitioner’s shares; excluded him from management and management information after he resigned as a director; failed to give notice of shareholder meetings; improperly allotted further alphabet shares (diluting the petitioner); and caused the company to pay dividends and increase salaries to extract wealth to the petitioner’s detriment. The petition relied on alleged breaches of directors' duties under the Companies Act 2006 (notably ss.171, 172 and 175).

Issues for decision

• Whether the company was a quasi‑partnership creating equitable expectations between the founders.
• Whether there was a legally binding exit (buy‑out) agreement or an estoppel by assurance.
• Whether the company’s affairs had been conducted in a manner unfairly prejudicial to the petitioner under s.994, having regard to the articles, statutory duties and the evidence.

Court’s findings and reasoning

• Quasi‑partnership: applying Ebrahimi and related authorities, the court found that the company was formed and continued on the basis of a personal relationship and mutual confidence, with an understanding that founders would participate in conduct/management and transfer controls constrained by the articles. The directors’ power to refuse share transfers and the business history supported that finding.
• Exit agreement/contract and estoppel: the petitioner abandoned the pleaded claim that an unsigned shareholders' agreement was binding. On the primary claim of an oral exit bargain, the judge applied ordinary contract principles (capacity to contract orally, certainty, intention, consideration) and the balance of probabilities standard. The contemporaneous documents and witness assessment showed no concluded binding buy‑out agreement before the petitioner left; the petitioner was advised to obtain an independent valuation and later did so after departure. The court rejected the contract and estoppel claims.
• Unfair prejudice allegations: the judge reviewed each pleaded complaint against the articles and directors’ duties. Key findings included: (a) no unfairness in declining to perform a non‑existent buy‑out; (b) exclusion from management and management information was not unfair where the petitioner had resigned as a director and intended to sever operational involvement; (c) the articles gave directors wide discretion over appointments, remuneration and dividends, and there was no established failure to call meetings that altered the petitioner’s rights; (d) allotment of alphabet shares to retain a key employee (Angelo) had a proper commercial basis, was recommended by the company accountant and did not constitute breach of duty; and (e) dividend/salary payments after the petitioner’s departure were not excessive when assessed by objective commercial criteria and in context (reallocation of work between fewer directors, saving the cost of replacing departed directors). Overall the total dividend payments did not materially increase when aggregated and commercial justification existed for the changes.

Result

The petitioners' contract, estoppel and unfair prejudice claims were dismissed.

The petition is dismissed. The court held that Brand Evolution Limited was a quasi‑partnership but that no legally binding shareholders’ agreement or exit buy‑out agreement had been concluded. On the pleaded unfair prejudice grounds the petitioner did not establish that the respondents had acted in a manner unfairly prejudicial to his interests: the allotment of shares and dividend/salary decisions were commercially justified, the petitioner had resigned as director and was not entitled to continue to participate in management as a director would, and there was no binding obligation to purchase his shares.