Rui Gu v Simon Whibberley & Ors

The petitioner alleged unfairly prejudicial conduct under section 994 of the Companies Act 2006 arising from unequal dividend payments and the directors' failure to operate the exit mechanism in the shareholders' agreement. The court found that the parties had agreed in October 2019 that the petitioner’s total remuneration, including additional dividends, would be paid pro rata while he worked part time, and that pro-rating those additional dividends during the two-year period was not unfairly prejudicial. However, the company’s deliberate failure to instruct the company’s valuer and to operate the contractual buy‑out mechanism after the petitioner’s resignation in December 2022 was an omission in the conduct of the company’s affairs that was unfairly prejudicial. The court ordered a buy‑out of the petitioner’s shares at a transfer price to be finalised by the joint valuer as at December 2022 and directed payment of additional dividends from 20 December 2022 to the date of sale.

This was a first‑instance petition by a minority shareholder under section 994 Companies Act 2006. The petitioner, a long‑standing employee‑shareholder, alleged (i) unequal treatment in the payment of interim and additional dividends contrary to the company’s articles and a shareholders’ agreement, and (ii) that when he ceased employment the directors failed to operate the exit mechanism in the shareholders’ agreement so that he remained locked in and could not realise his investment. Ancillary complaints concerned withholding of documents and the company paying the respondents’ legal costs.

Key issues: (i) whether the reduction and later non‑payment of additional dividends constituted unfairly prejudicial conduct; (ii) whether the company’s failure to trigger and complete the contractual buy‑out mechanism after the resignation was an omission in the conduct of the company’s affairs amounting to unfair prejudice; and (iii) the appropriate remedy and valuation date.

• The court found that, on the facts, the parties had agreed in October 2019 that the petitioner would work part‑time and be paid pro rata for his total remuneration, which the directors and petitioner treated as including additional dividends. Consequently, the apportionment of additional dividends during the two‑year period following that agreement, and the delay in payment of part of the December 2021 dividend pending clarification of the petitioner’s intentions, were not unfairly prejudicial.
• The court held that the company, however, deliberately failed to operate the exit provisions in clause 7–10 of the shareholders’ agreement after the petitioner’s December 2022 resignation. The company did not instruct its accountant as valuer in the required time, concealed a later valuation process and did not offer to buy the shares. That omission was conduct of the company’s affairs and was unfairly prejudicial, because it deprived the petitioner of a prompt buy‑out and left him locked in without the agreed exit or dividends.
• Remedy: the court ordered that the company buy the petitioner’s shares at the transfer price without discount to be determined by the valuer as at December 2022. The company must also pay additional dividends (not salary top‑ups) from the 20 December 2022 dividend until completion at the same per‑share rate as paid to other shareholders. The court directed refinement of the joint valuer’s December 2022 calculation and left parties liberty to apply on limited matters (one adjustment to the expert’s calculations required). The court declined to award interest on the purchase price given the petitioner’s continuing dividend entitlements.

The judgment also addressed a counterclaim concerning company laptops and held the company retained ownership and was entitled to delivery up; given embedded proprietary source code delivery up was required and damages would be inadequate.

Allowed in part. The court dismissed the complaint that pro‑ration of additional dividends during the agreed part‑time period (from October 2019) was unfairly prejudicial, but found that the company’s deliberate failure to operate the contractual exit mechanism after the petitioner’s December 2022 resignation was an omission in the conduct of the company’s affairs that was unfairly prejudicial. The court ordered a buy‑out of the petitioner’s shares at a transfer price to be determined by the valuer as at December 2022, directed payment of additional dividends from 20 December 2022 to completion, and made consequential directions concerning valuation and return of company laptops.