Vladimir Yanpolsky v Robert Macmillan & Ors

In a petition under Companies Act 2006, majority shareholders may amend articles to protect the company’s commercial interests, even where the amendment adversely affects a minority shareholder, provided the power is exercised in good faith for the company’s benefit.

That principle does not give the majority unrestricted power to expropriate the minority. Where provisions concerning the value and compulsory transfer of shares serve only the shareholders’ interests, they remain subject to the equitable restraint against oppression or other injustice. A retrospective amendment which converts a minority shareholder’s shares into nominal-value shares, transferable for nominal consideration, may therefore amount to unfair prejudice. Relief should restore the shareholder to the position that would have existed had a fair and reasonable price been provided.

Mr Yanpolsky petitioned under section 994 of the Companies Act 2006 concerning the affairs of Box Processing Limited. Following his conviction and imprisonment, his employment ended and 8,611 ordinary shares were automatically converted into deferred shares under the original articles.

After his release, the majority shareholders adopted amended articles which classified him as a bad leaver and enabled his remaining 1,389 ordinary shares to be converted into deferred shares and transferred for nominal value. The company’s business was subsequently transferred to a new company and sold, producing substantial value for the majority shareholders.

The issues were whether there was a binding hidden shareholder agreement, whether the amendment and subsequent conversion constituted unfair prejudice, and what relief should be granted.

1. Ground 1 failed. The evidence did not establish any contractual agreement, representation or understanding that Mr Yanpolsky’s deferred shares would be restored or treated as ordinary shares after his release. His employment had been terminated, his work in prison did not create a new employment or consultancy agreement, and the first deferment complied with the original articles.
2. Article amendments. Applying the principles in Re Charterhouse Capital Ltd, the court distinguished between amendments concerning the interests of the company and amendments concerning only shareholders. An amendment may be valid despite benefiting the majority where it is made in good faith for the company’s benefit. Where the company has no interest in the relevant provision, the amendment must not oppress or otherwise unjustly prejudice the minority.
3. The extension of the bad-leaver provisions to criminal convictions could potentially serve the company’s interests. However, the provisions making Mr Yanpolsky’s shares nominal-value shares and permitting compulsory transfer for £1 served only the majority’s interests. Their retrospective application to conduct not previously subject to that sanction was oppressive and unjust.
4. The previous offers to purchase the shares did not cure the unfairness. Mr Yanpolsky was not obliged to accept them, and the offers did not reflect the company’s true commercial value. The appropriate valuation was to assume a hypothetical sale by a willing seller and purchase by the majority, with the company proceeding without Mr Yanpolsky as a shareholder.
5. The requirements of section 994 were established in respect of the 1,389 shares. Relief was adjourned because submissions were required on the Paymentology issue, any minority discount and deferred consideration. The court indicated that the remedy should provide a fair and reasonable price, with the relevant valuation date being March 2022.