John Simpson v Michael Agapios Diamandis & Ors

This is a section 994 Companies Act 2006 unfair prejudice petition in which the petitioner, a 47.5% shareholder in AJHL, alleged that the respondents caused AJHL to transfer its valuable trading subsidiary, Tilon CG Limited (TCGL), into a new holding company (THL) for £150,050 when its market value at the date of transfer was £2.9 million, thereby depriving him of the value of his shareholding. The court held that the transfer was at a substantial undervalue and that the conduct amounted to unfair prejudice within the meaning of section 994 and warranted relief under section 996.

The court resolved a central valuation dispute between rival experts by rejecting a distressed-sale approach and accepting a discounted cash flow (DCF) valuation based on management forecasts, fixing TCGL's value at £2.9 million as at 12 November 2021 (the date of the Transfer). The judge found that the majority shareholder/director engineered the extraction and sale, excluded the petitioner from the process, failed to obtain a proper market valuation, and breached fiduciary duties. A non-member (the third party who acted as de facto partner) was found sufficiently implicated and fixed with secondary liability. The remedy ordered was a buy‑out of the petitioner’s shares based on the November 2021 valuation.

Background and nature of the claim:

• The petitioner, Mr Simpson, held 47.5% of Artemas Joseph Holdings Limited (AJHL); AJHL owned TCGL, an operating trading business. In November 2021 TCGL shares were transferred to a newly incorporated holding company, THL, for £150,050. THL’s principal participants included the First and Third Respondents. The petitioner alleged the Transfer was at a gross undervalue and that he had been excluded from the planning and deprived of his share of value in AJHL.
• The petitioner sought relief under section 996 following a petition under section 994 Companies Act 2006 in the form of a retrospective buy‑out of his AJHL shares.

Procedural posture: First instance trial in the Chancery Division. The petition was contested principally by the First and Third Respondents; some respondents reached terms before or during trial. An adjournment application relating to valuation timing and disclosure issues was refused.

Issues framed by the court:

• Whether the Transfer was at an undervalue (comparison of the true value of TCGL at the date of Transfer with the sum paid to AJHL);
• Whether the conduct amounted to unfair prejudice under section 994;
• Whether a buy‑out order under section 996 should be made and against which respondents;
• Whether any third party should be primarily or secondarily liable;
• The appropriate valuation date for the buy‑out and the value at that date; and
• Whether a minority discount should apply.

Court’s reasoning and conclusions:

• Valuation: two experts gave sharply contrasting valuations. One applied a DCF to management forecasts treating TCGL as a going concern and produced a November 2021 value of £2.9m. The other adopted a distressed‑sale approach and produced a nil value. The judge rejected the distressed sale approach because it was counterfactual on the correct valuation date (12 November 2021) and the factual indicia justifying a distressed sale did not obtain after loan notes were issued; the judge accepted the DCF methodology and fixed the value at £2.9m.
• Unfair prejudice: the sale for £150,050 materially reduced AJHL’s value and thus the petitioner’s shareholding value; the petitioner and the director had been in a quasi‑partnership relationship and the director’s conduct (including excluding the petitioner from information and decision‑making and failing to obtain a market valuation) was unfair within the statutory tests. The director had also breached statutory fiduciary duties (sections 171, 172, 174, 175 Companies Act 2006).
• Third‑party liability: the third party who collaborated in planning and securing the investment was sufficiently implicated (collusion/acquiescence for self‑interest) to be made liable; the court made that third party secondarily liable rather than jointly and severally primarily liable.
• Valuation date and remedy: the judge fixed the valuation date as the date of the Transfer, 12 November 2021, and ordered that a buy‑out be effected at the value based on that date (subject to agreed consequential adjustments, including dilution effects from loan‑note conversions). No minority discount was applied.

First instance: The petition under section 994 was well founded. The court held the Transfer of TCGL for £150,050 was at a substantial undervalue (TCGL valued at £2.9 million on 12 November 2021), that the conduct amounted to unfair prejudice and that director’s conduct breached fiduciary duties. Relief under section 996 was ordered in the form of a buy‑out of the petitioner’s AJHL shares at the November 2021 valuation. The third party (the former de facto partner) was held sufficiently implicated and fixed with secondary liability. The valuation date was fixed as 12 November 2021 and no minority discount was applied.