BS Enterprises Limited, Re

A successful unfair-prejudice petition requires both prejudice and unfairness. Prejudice must be real, objectively established and suffered in the capacity of a member, but need not be strictly financial. Unfairness is assessed against the company’s legal and equitable arrangements, not a free-standing notion of fairness. A director’s breach of duty may support relief, but its nature and resulting prejudice matter. Consent to another person managing the company may be conditional on a buyout; it does not necessarily permit a successor to run the company to the member’s disadvantage after the buyout does not occur. Relief must remedy the prejudice, be proportionate and be exercised judicially.

Mr Saini, a 50% shareholder and director of BS Enterprises Limited, petitioned under section 994 of the Companies Act 2006. The company owned a pub and restaurant property. After the death of his business partner, Mr Saini was excluded from management while the company let the property to operating companies owned by the respondent director and her cousin. He alleged that the company received below-market rent, lacked formal occupancy agreements and paid costs that the operating companies should have borne.

The respondent denied unfair prejudice, relying on Mr Saini’s alleged acquiescence and on an earlier understanding that he would step back from the business pending a buyout. The court had to decide whether the company’s affairs were unfairly prejudicial to his interests as a member and, if so, what relief should follow.

The petition succeeded. The company’s affairs had been conducted in a manner unfairly prejudicial to Mr Saini’s interests as a member. The court found that the respondent had allowed companies in which she or her family had an interest to occupy the property at below-market rent, without formal terms or adequate protection of the company’s interests. The arrangement also left the company bearing utility and equipment costs. This harmed the company and Mr Saini while benefiting the operating companies.

The requirements of unfairness and prejudice are distinct. Prejudice must be real, objectively established and suffered in the petitioner’s capacity as a member; it can extend beyond a loss in share value or other strictly economic harm. The court applied the approach in Re Coroin Ltd [2012] EWHC 2343. Unfairness is assessed in the context of the company’s legal and equitable arrangements, including any understandings between shareholders, and must rest on established equitable principles. The court drew on Grace v Biagioli [2005] EWCA Civ 1222 and O’Neill v Phillips [1999] 1 WLR 1092.

The respondent breached her duties to act in the company’s interests and address conflicts arising from her ownership and control of an operating company. Mr Saini had not acquiesced in the under-renting: he had not been told about the relevant company arrangements, and he had sought commercial terms and information. His earlier agreement to step back from management was conditional on a buyout. The original personal understanding with Jagdeep ended on Jagdeep’s death, so the pleaded claim based on its continuing force failed. But the respondent could not rely on Mr Saini’s conditional consent to run the company to his disadvantage for her or her family’s benefit while declining to buy him out.

Relief must remedy the prejudice and be proportionate, rather than punitive. A clean break was considered fair and practically just. If the parties could not agree its terms, a further hearing would determine the appropriate relief, potentially including a share purchase and treatment of the company’s debt to Mr Saini and his mortgage liability.

not stated in the judgment.