Richard Padun v Neil Dickinson & Anor

For reverse summary judgment, the question is whether the petitioner has a realistic prospect of success, not whether the respondent has proved that the shares are worthless. The court must also consider whether there is another compelling reason for a trial, including the need for disclosure and valuation evidence.

Shares in subsidiaries remain company assets unless lawfully transferred for consideration. Directors cannot appropriate them for themselves. In an unfair prejudice petition, the court’s remedial jurisdiction may include compensation for employment-related loss attributable to exclusion from management, even where the offending director owed no separate fiduciary or statutory duty to the member.

Richard Padun presented three petitions under section 994 of the Companies Act 2006 concerning Interactive Media Group Ltd (IMG), Philharmonic Audio Visual Ltd and Arcstream Ltd. Neil Dickinson applied to strike out the petitions or obtain reverse summary judgment.

The applications concerning the subsidiaries raised standing because IMG, rather than the individual directors, was the owner of their shares. The IMG application argued that its shares had no value because the company was insolvent. The central issues were whether Mr Padun could establish membership and standing, whether the shares had more than nominal value, and whether the petitions should proceed despite incomplete valuation evidence.

1. Subsidiary petitions. Mr Padun was not a member of Philharmonic or Arcstream. The evidence showed that IMG had acquired Philharmonic and was the sole subscriber for Arcstream. No lawful agreement transferring the shares from IMG to Mr Padun or Mr Dickinson, and no consideration, had been identified. The petitions concerning those companies were therefore dismissed.
2. Company assets and directors’ duties. Even if the transfers had been documented and registration had occurred, the shares would have been held on constructive trust for IMG. Directors cannot transfer company assets to themselves for no consideration, whether the company is solvent or insolvent. Such conduct may constitute misfeasance, misappropriation and breach of fiduciary duty.
3. Valuation. IMG’s shares could not be treated as worthless at the proposed valuation date merely because IMG was insolvent. The valuation had to address the group’s assets and liabilities, including the value of the subsidiaries, security arrangements and whether selling particular subsidiaries or assets would produce a better return. The court referred to the guidance in CVC v Demarco Almeida [2002] B.C.C. 684 at [37–38].
4. Reverse summary judgment. Mr Dickinson bore the burden of showing that the petition had no real prospect of success and that there was no other compelling reason for a trial. Although the evidence shifted the evidential burden to Mr Padun, the absence of management accounts and disclosure justified an opportunity to investigate the valuation issues. The IMG petition was therefore permitted to proceed, subject to amendment and case-management directions.
5. Remedy and directions. Applying Re Hut Group Ltd [2021] EWCA Civ 904 and following Wootliff v Rushton-Turner [2016] EWHC 2802 (Ch), the court accepted that compensation for breach of the petitioner’s employment contract could be claimed as relief attributable to exclusion from management. The IMG petition was stayed for three months for information requests and an application to amend. Alternative dispute resolution and a subsequent case-management conference were directed.

First-instance decision. No earlier appellate decision is stated in the judgment.