Sophia Ho Hang Chong & Ors v Guardian Capital Partners Limited & Ors

The rule against reflective loss does not bar a shareholder from pursuing the distinct statutory remedy for unfairly prejudicial conduct merely because the alleged fall in share value reflects loss suffered by the company. A petition under Companies Act 2006, section 994 may seek a genuine personal remedy, such as a buy-out, alongside relief for the company that could otherwise be pursued derivatively. The court’s broad remedial discretion allows appropriate compensation and company-benefiting relief. The availability of a derivative claim does not, by itself, make the petition abusive.

Investors in Sandycombe Development Limited presented an unfair prejudice petition alleging that company funds had been diverted and information withheld. They sought a buy-out, personal compensation and relief for the company, including an account of profits. The respondent shareholders and directors applied to strike out the petition or, alternatively, for reverse summary judgment. They argued that the claimed loss was reflective of loss to the company, that the claims belonged to the company and should proceed under Part 11 of the Companies Act 2006, and that combining personal and corporate claims was impermissible. The court considered whether the reflective loss rule or the derivative-claim regime prevented the petition and its pleaded remedies from proceeding.

1. The application to strike out the petition was refused. The court proceeded on the pleaded facts and held that the reflective loss rule did not bar the statutory remedy sought under section 994 of the Companies Act 2006.

2. The rule may prevent a shareholder from recovering, in an ordinary personal action, a fall in share value that merely reflects loss suffered by the company where the company has a cause of action against the same wrongdoer. But a section 994 petition seeks a distinct statutory remedy. The court relied on Marex Financial Ltd v Sevilleja [2020] UKSC 31, [2021] AC 39, which recognised that shareholders retain rights including relief for unfairly prejudicial conduct. A director’s breach of duties to the company, including diversion of its assets, may therefore support a petition even where the shareholder’s loss reflects the company’s loss or the shares have become worthless.

3. A petition may genuinely seek a buy-out or other personal relief unavailable in a pure derivative claim while also seeking relief for the company. The court adopted the guidance in Re Coinomi Ltd, Ntzegkoutanis v Kimionis [2023] EWCA Civ 1480, [2024] 1 BCLC 354. The “rare and exceptional case” restriction attributed to Re Chime Corp Ltd, Nina Kung v Tan Man Kou (2004) HKCFA 73 does not represent the law in England and Wales. Part 11 remains relevant where a petition seeks only company relief or is used to evade the statutory permission filter.

4. The broad discretion under section 996 permits relief that includes a buy-out valuation adjusted for unfairly prejudicial conduct, compensation payable to a petitioner for conduct involving breaches of duties owed to the company, and an account of profits for the company. The court found no basis to strike out those heads of relief or the alternative request for permission to bring a derivative claim.

5. Relief for the company would benefit other shareholders and would not prevent them from pursuing any remedies available to them. The petitioners’ personal remedies would not determine the rights of other shareholders. No significant prejudice to those shareholders justified striking out the petition.