Vladimir Yanpolsky v Robert Macmillan & Ors

The petitioner brought a petition under section 994 Companies Act 2006 alleging unfair prejudice arising from the conversion of his ordinary shares into deferred shares and the subsequent transfer and sale of the company's business. The court applied the established principles governing section 994 claims and the court's remedial discretion under section 996, emphasising the need for pleadings to identify the factual and legal basis of the complaint.

The court rejected the petitioner's primary allegation (the existence of a "Hidden Shareholder Agreement") in relation to the 8,611 shares: there was no admissible evidence of an agreement, representation or understanding that the shares would be preserved or restored upon release from prison, and the conversion of those shares followed the operation of Article 15 of the original articles. The court found, however, that the adoption of the amended articles on 24 February 2022 (and their application to convert the remaining 1,389 shares into deferred shares and permit compulsory transfer at nominal value) was unfair and prejudicial to the petitioner. The amended provision permitting compulsory transfer at nominal value was not in the company's interest and operated to permit oppression of the minority by the majority.

The court therefore upheld the petition in part (as regards the 1,389 shares) and adjourned the question of remedy under section 996 for further submissions and valuation evidence addressing valuation timing, minority discount and deferred consideration issues.

Background and parties: The petitioner, a founding shareholder and former director/CTO of Box Processing Limited, was convicted of a computer misuse offence in December 2019 and imprisoned. Following resignation as director and termination of employment, 8,611 of his 10,000 ordinary shares were converted to deferred shares in March 2020. After his release, the majority shareholders (the first and second respondents) adopted amended articles in February 2022 which resulted in conversion of the remaining 1,389 ordinary shares into deferred shares and eventual transfers leading to the sale of the business to parties that benefited the majority shareholders.

Nature of the claim: The petitioner sought relief under section 994 Companies Act 2006 for unfairly prejudicial conduct and relief under section 996. He alleged (i) a "Hidden Shareholder Agreement" or binding representation that his shares would be preserved and restored on release; (ii) that adoption of the amended articles and the special resolution converting his remaining shares was unfair and breached that agreement; and (iii) that the transfer and sale of the business was unfairly prejudicial.

Issues framed by the court:

• Whether there was a Hidden Shareholder Agreement, representation or understanding that preserved the petitioner's equity and entitled him to restoration of shares;
• Whether the conversion of the 8,611 shares was unfair and prejudicial;
• Whether the adoption of the amended articles (and the conversion of the remaining 1,389 shares) was valid or unfairly prejudicial, and whether it breached any agreement;
• Whether the subsequent corporate restructuring and sale of the business was unfairly prejudicial;
• If unfair prejudice was established, what relief should be granted under section 996.

Findings and reasoning:

• The court rejected the existence of the Hidden Shareholder Agreement on the balance of probability. There was insufficient contemporaneous or oral evidence to identify offer, acceptance, terms, intention to create legal relations or reliance that would make a private agreement or binding representation operative. The conversion of the 8,611 shares resulted from the lawful operation of Article 15 after termination of employment and relevant Companies House filings.
• The court accepted that the petitioner provided substantial technical work for the company while imprisoned, but found (based on documentary evidence and the witness assessments) that this did not establish a contractual employment or consultancy obligation sufficient to displace the formal termination and the operation of the articles.
• The court held that the amended articles (24 February 2022) were not a neutral "tidying up" exercise and, insofar as they permitted retrospective conversion and compulsory transfer at nominal value, were not for the company's interest but principally benefitted the majority shareholders. Applying the relevant authorities on the limits to majority powers to amend articles, the court concluded that the retrospective application enabling expropriation without provision for a fair and reasonable price amounted to unfair prejudice and oppression of the minority.
• Accordingly, the section 994 petition succeeded in part in relation to the 1,389 shares; the challenge to the 8,611 conversion failed.
• Relief under section 996 was not finally determined. The court directed that valuation and remedy issues (valuation date, minority discount and treatment of deferred consideration, and related factual matters arising from investor/acquirer discussions) required further submissions and expert consideration, so the remedial stage was adjourned to a further hearing.

Procedural and evidential notes: The court made extensive credibility findings, assessed witness reliability (noting cautions about bad character, false memory and documentary weight), and relied on a joint valuation expert. The judge encouraged settlement but made directions for an adjourned hearing to determine remedy if no settlement is reached.

The petition under section 994 Companies Act 2006 is allowed in part. The court held (i) there was no Hidden Shareholder Agreement or binding representation entitling the petitioner to restoration of the 8,611 deferred shares and the automatic deferment of those shares pursuant to Article 15 of the original articles was valid; (ii) the adoption of the amended articles on 24 February 2022 (and their application to convert the remaining 1,389 ordinary shares into deferred shares with compulsory transfer at nominal value) was unfair and prejudicial to the petitioner because those provisions were not in the company's interest and permitted oppression of the minority; and (iii) the remedy under section 996 is to be determined at a further hearing with directions on valuation (including valuation date, minority discount and deferred consideration issues).