Jonathan Frank Bown v Clive Shipley & Anor

Standing to present an unfair-prejudice petition ordinarily depends on membership recorded in the company’s register of members. A person claiming shares transferred to him may rely on Companies Act 2006, section 994(2), only where a proper instrument of transfer has been executed and delivered to the company, even if registration has not yet occurred. Indirect share ownership does not confer membership or a proprietary interest in the company’s assets.

The ordinary interim-injunction test applies to prohibitory relief. A proposed interim change of management is a mandatory and intrusive remedy requiring a high degree of assurance of success. Where standing itself is uncertain, such relief should be refused.

The petitioner presented a petition under section 994 of the Companies Act 2006 concerning the affairs of Durley Farm Limited, a two-person company formed to acquire agricultural land. He alleged that the first respondent had unfairly prejudiced his interests by misappropriating funds, excluding him from management, filing company notifications, obstructing dealings with the land and breaching directors’ duties.

Pending trial, the petitioner sought injunctions restraining the first respondent from acting as director or dealing with the land, reinstatement as a director, and the appointment of independent accountants. The principal issues were whether the petitioner had standing under section 994 and whether the interim relief, particularly the proposed change of management, should be granted.

1. Standing. Section 994(1) confers standing on a member, whose name must be entered in the company’s register of members under sections 112 and 113 of the Companies Act 2006. The Companies House register is irrelevant to that question. Indirect ownership through another company does not make the petitioner a member or beneficial owner of the subsidiary’s shares or assets.
2. Section 994(2) may extend standing to a person to whom shares have been transferred by operation of law. Following Re a Company 003160 of 1986, an agreement alone is insufficient; there must at least be a proper instrument of transfer executed and delivered to the transferee or the company. The evidence disclosed a serious issue as to whether the petitioner’s stock transfer form had been lodged with Durley, but the judge had no high degree of assurance that this would be proved at trial.
3. Interim relief. For ordinary prohibitory relief, American Cyanamid Co v Ethicon Ltd required consideration of a serious issue to be tried, adequacy of damages, and the balance of convenience, normally preserving the status quo as explained in Siskina v Distos Compania Naviera SA.
4. A proposed change of management is substantively mandatory and carries a heightened risk of injustice. Applying the approach in Films Rover International Ltd v Cannon Film Sales Ltd and Garofalo v Crisp, the applicant needed a high degree of assurance of success. That threshold was not met, particularly given the petitioner’s misunderstandings of corporate structure, membership, company assets and Companies House filings.
5. The land restraint was an ordinary negative injunction, for which the enhanced threshold did not apply. Even assuming sufficient standing, the evidence disclosed no appreciable risk that the first respondent would sell the land otherwise than in accordance with the company’s strategy and interests. The mandatory relief and appointment of accountants were also unjustified.
6. The application was dismissed. The parties were invited to agree a draft order giving directions for the petition to proceed to trial.