John Simpson v Michael Agapios Diamandis & Ors

Conduct may be unfairly prejudicial where company assets are transferred to a related company at a substantial undervalue, particularly where the transaction diverts value from a quasi-partner who is excluded from information and decision-making.

The court must assess unfairness objectively against the parties’ legal and commercial relationship. A remedy may be imposed on a non-member who is sufficiently implicated in the unfair conduct, including through collusion or, on the facts, acquiescence. The valuation date for a buy-out is discretionary and should reflect fairness. A date earlier than the hearing may be selected where later deterioration, uncertainty or delay would unfairly burden the petitioner. Minority discounts are generally inappropriate in a quasi-partnership.

The petitioner held 47.5% of Artemas Joseph Holdings Ltd (AJHL), which owned Tilon CG Ltd (TCGL). The first respondent, AJHL’s sole director and the petitioner’s quasi-partner, arranged for TCGL to be transferred to a new holding company, Tilon Holdings Ltd, for £150,050. The petitioner received no shares in the new company.

The petitioner alleged that TCGL was worth £2.9 million, that the transfer was unfairly prejudicial under sections 994 and 996 of the Companies Act 2006, and that the third respondent was sufficiently involved to be liable. The central issues were valuation, unfair prejudice, third-party liability, the appropriate valuation date and the availability of a buy-out remedy.

1. Transfer and prejudice. The value of TCGL on 12 November 2021, the transfer date, was £2.9 million. The transfer for £150,050 was therefore at a substantial undervalue. It seriously diminished the economic value of the petitioner’s AJHL shareholding and constituted prejudice within section 994 of the Companies Act 2006.
2. Unfairness. The petitioner and first respondent had conducted AJHL on the basis of mutual trust, confidence and parity of shareholding. Their relationship was a quasi-partnership. The first respondent unfairly used his legal control, with the support of the second respondent, to transfer AJHL’s principal asset into a company he controlled, reduce the petitioner’s proposed interest and exclude him from the planning and decision-making process. The objective test of unfairness was satisfied.
3. The first respondent also breached his fiduciary and statutory duties as director, including the duties under sections 171, 172, 174 and 175 of the Companies Act 2006. The transfer was not for a proper purpose, did not promote AJHL’s success, failed to reflect reasonable care and skill, and involved a conflict of interest.
4. Third-party liability. Applying the test in F&C Alternative Investments Ltd v Barthelmy (No 2) [2012] Ch 613, the third respondent was sufficiently connected with the unfair conduct for it to be just to grant relief against him. His involvement went beyond knowledge or passive acquiescence: he helped develop and present the restructuring, knew of the petitioner’s exclusion and benefited substantially from the transaction.
5. The first respondent was primarily liable. The third respondent was fixed with secondary liability. No minority discount was appropriate because AJHL was a quasi-partnership.
6. Valuation date and remedy. The valuation date was the transfer date. Selecting a later date would have rewarded the respondents’ disclosure failures, prolonged the proceedings and exposed the petitioner to the risk of subsequent deterioration. A buy-out order was made under section 996, requiring the first and third respondents to pay the value of the petitioner’s AJHL shares by reference to TCGL’s £2.9 million value on 12 November 2021, subject to dilution from the inward investment and consequential orders concerning the petitioner’s outstanding loan.

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