Rui Gu v Simon Whibberley & Ors

Conduct may be technically contrary to a company’s constitutional documents yet not unfair for the purposes of Companies Act 2006, s 994, where the shareholder understood and accepted the relevant arrangement. Failure to operate an agreed exit mechanism can, however, constitute conduct of the company’s affairs and unfair prejudice where it leaves a shareholder locked in and unable to realise the investment. The court may grant a buy-out remedy even though a contractual or specific-enforcement claim might originally have been more appropriate, particularly where the contractual machinery has expired through the company’s deliberate inaction. The appropriate valuation date is determined by what is just in the circumstances, having regard to the contractual mechanism and the cause of the prejudice.

The petitioner was a minority shareholder and former employee of European Automation Projects Ltd. He alleged that the directors had unfairly prejudiced him by reducing or withholding additional dividends and by failing to operate the shareholders’ agreement mechanism for purchasing his shares after his employment ended.

The company accepted that an event of default occurred on his resignation in December 2022, but did not instruct its accountant to value the shares or complete the contractual sale process. The petitioner sought a buy-out at an undiscounted value, unpaid dividends and other relief under Companies Act 2006, s 996. The central issues were whether the dividend arrangements were unfair and whether the failure to operate the exit mechanism fell within s 994.

1. The petition succeeded in substantial part. The court ordered the Company to purchase the petitioner’s shares at an undiscounted transfer price to be determined by the valuation expert, with liberty to substitute shareholders if the Company did not purchase them.

2. The Articles and the shareholders’ agreement required dividends to be paid proportionately. Nevertheless, the petitioner had understood and accepted for two years that all remuneration, including additional dividends, would be apportioned according to the time he worked for the Company. The reduced payments during that period were therefore prejudicial but not unfair under s 994.

3. The failure to pay any part of the December 2022 dividend, or later additional dividends, was different. The petitioner remained a shareholder and there was no agreement or acquiescence supporting non-payment. He remained entitled to dividends until completion of the share sale.

4. The exit mechanism was a matter of the Company’s affairs. It required the Company to instruct its accountant to value the shares and administer the resulting purchase or transfer process. The Company’s failure to do so was a deliberate omission which left the petitioner locked in without income from his investment. A contractual remedy that might have been suitable earlier did not require the court to leave him to start fresh proceedings after the contractual timetable had expired.

5. The valuation obtained secretly in 2023 was not compliant with the shareholders’ agreement and did not bind the petitioner. The fair remedy was valuation as at December 2022, the date of resignation and event of default, without a minority discount. The Company was also ordered to pay additional dividends from 20 December 2022 until completion. Interest on the purchase price was not appropriate because the continuing dividends compensated for delay. The counterclaim for delivery up of two laptops succeeded because they had not been gifted to the petitioner and contained proprietary software.

First-instance decision. No appellate history was stated in the judgment.