Mantir Singh Sahota v Albinder Singh Sahota & Ors

A petition under Companies Act 2006, section 994, requires proof that company affairs were conducted in a manner both unfair and prejudicial to the petitioner’s interests as a member. In a quasi-partnership, there may be a legitimate expectation of directorship and participation in management, but not involvement in every management decision where powers have been delegated. Serious mismanagement requires more than a decision shown by hindsight to have been wrong. A petitioner’s misconduct affects the assessment only where there is a sufficient connection with the alleged unfair prejudice. The usual remedy in a small private company is a buy-out at a fair, ordinarily undiscounted, value. A minority discount may be appropriate in exceptional cases, including where the petitioner caused the breakdown in trust and confidence.

The petitioner and the respondents were brothers and equal shareholders in a company which the parties accepted had been operated as a quasi-partnership. The petitioner alleged that financial information had been withheld, that he had been excluded from management, that the company had been mismanaged, that company funds had been used to build a house for the first respondent, and that company assets had been improperly transferred.

The court determined whether the alleged conduct was unfairly prejudicial under section 994 of the Companies Act 2006, which respondents were responsible, whether the petitioner’s own conduct affected the claim, and what remedy and valuation should follow.

1. Financial information. The first respondent deliberately withheld company information and documents requested by the petitioner from January 2020. The petitioner was entitled, as a director, to inspect the company’s books and records under section 388 of the Companies Act 2006. His self-interest in checking whether the brothers had received equal benefits did not make the purpose improper. The withholding was unfairly prejudicial.
2. Management. The quasi-partnership created a legitimate expectation that each brother would be a director and participate in management. That did not require participation in every decision. The brothers had acquiesced in delegating substantial powers to the managing director. Most complaints concerned employment or management matters and did not establish unfair prejudice as members. The notice proposing the petitioner’s removal was unfair but not prejudicial, because the meeting did not take place and he was not removed.
3. Mismanagement and misappropriation. The allegations concerning the old corrugator and approval of accounts were not proved. The court inferred that fraud had occurred in relation to invoices issued in the name of KTS Supplies Limited with an invalid VAT number, but the petitioner did not prove that the fraud involved misappropriation by the respondents rather than fraud by the labour supplier. Nor was gross mismanagement by the respondents established on the alternative VAT case.
4. Gorway Road. The first respondent deliberately caused the company to pay for materials used to construct his house, then dishonestly denied this and attempted to conceal it. The company’s loss was assessed at £117,404. The use of company money itself was not unfair to the petitioner because he had acquiesced in it; the dishonest denial and failure to repay were unfair and prejudicial.
5. Petitioner’s conduct. The petitioner’s violence, demand for a Rolls-Royce and conduct concerning his son’s competing business did not justify the withholding of information or the dishonest denial concerning the house. There was no sufficient nexus with those acts. The breakdown in trust and confidence was primarily caused by the first respondent.
6. Remedy. The first respondent was ordered to purchase the petitioner’s shares. The company was valued at £28,995,400 as at 29 February 2024. The petitioner’s 19.23% interest was valued at £5,575,815. No minority discount was applied.