Jason Ratcliffe Atherton v Mark Ratcliffe Atherton & Ors

A claimant seeking a beneficial shareholding or proprietary estoppel must establish clear terms, an identifiable entitlement, reliance and detriment. General assurances, unresolved tax arrangements and indefinite future intentions are insufficient. A small company is not thereby a quasi-partnership: the necessary personal relationship, mutual confidence, agreement concerning participation and restrictions on transfer must be proved.

A person is a de facto director only if performing functions properly discharged only by a director; ministerial or administrative tasks are insufficient. Directors breach their duties where they ignore clear professional advice and thereby impose an avoidable liability on the company. Dishonest assistance requires dishonesty assessed against the defendant’s role and circumstances. Unfair prejudice was established by dishonest accounting adjustments and payments used to contrive insolvency and appropriate the company’s business, but not by the other complaints.

The claimant sought a 20% shareholding, or its value, in Key People Limited, relying on alleged agreements, trusts, representations and proprietary estoppel. The petitioners, including the claimant and Scott and Louise Neto, also alleged that the affairs of Just Recruit Group Limited were conducted unfairly and prejudicially, including through the removal of directors, refusal to pursue a sale, dishonest accounting, excessive payments and a transfer of the business through administration.

The court tried the claim and liability issues together. It considered whether the alleged arrangements existed, whether Just Recruit was a quasi-partnership, the status and duties of the alleged directors, and whether the conduct caused unfair prejudice to the petitioners as members.

1. The claim was dismissed. The alleged 20% entitlement in Key People Limited was not established as an agreement, trust, share agreement or representation. The evidence did not identify sufficiently clear terms, the source and timing of the shares, or the obligations attached to them. Reliance and detriment were also unproved. The requirements identified in Thorner v Major [2009] 1 WLR 776 were not met.
2. The allegation that Just Recruit was a quasi-partnership failed. Applying Ebrahimi v Westbourne Galleries Ltd [1973] AC 360, the company’s size was insufficient. There was no proved relationship of mutual confidence, agreement that the shareholders would participate in management, or relevant restriction on share transfers.
3. The petition succeeded in part. Mark Atherton, Paul Donovan and Norman Freed ignored clear professional advice that Mr Neto’s dismissal would be unfair and expose Just Recruit to substantial liability. That breached the duty of reasonable care, skill and diligence under section 174 of the Companies Act 2006, and, absent other evidence, the duty under section 172. The conduct was unfairly prejudicial because it saddled the company and its members with an avoidable liability.
4. Mr Freed’s dishonest alteration of the 2019 accounts, by transferring income from Just Recruit to Key People and recording a substantial inter-company loan, and the subsequent payments to Achieva Group, were steps in a plan to contrive insolvency and acquire the business. They unfairly prejudiced the petitioners. The natural valuation date for a buy-out was 31 December 2018, when the last true accounts were available. Relief was reserved for a further hearing.
5. Ms Thompson was not shown to be a de facto director during the relevant periods. Applying In re Hydrodam (Corby) Ltd [1994] 2 BCLC 180, the pleaded and proved functions were administrative and ministerial, rather than functions properly discharged only by a director. Her dishonest assistance claim also failed. Her instructed payment of money, without a financial interest or strategic role, was not dishonest in the sense considered in Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378.
6. The remaining complaints, including the failure to sell Just Recruit, the removals themselves and other alleged breaches, failed. The case against Ms Thompson was dismissed. The consequential relief and the parties against whom it should be ordered were left to a further hearing.