Dean Joseph Banfield v Paul Robert Edwards
| Jurisdiction | England & Wales |
| Judge | Richard Williams |
| Judgment Date | 08 August 2024 |
| Neutral Citation | [2024] EWHC 2104 (Ch) |
| Court | Chancery Division |
| Docket Number | Claim No: CR-2022-BHM-000439 |
[2024] EWHC 2104 (Ch)
HIS HONOUR JUDGE Richard Williams
(Sitting as a High Court Judge)
Claim No: CR-2022-BHM-000439
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS IN BIRMINGHAM
COMPANIES COURT (ChD)
In the matter of Brand Evolution Ltd
And in the matter of the Companies Act 2006
Priory Courts
33 Bull Street
Birmingham, B4 6DS
Maria Mulla (instructed by MFG Solicitors LLP) for the Petitioner
Mark Grant (instructed by Shakespeare Martineau LLP) for the First to Third Respondents
Tony Watkin (instructed by Lodders Solicitors LLP) for the Fourth Respondent
The Fifth Respondent was not represented
Hearing dates: 19–21 February & 1 March 2024
Written closing submissions filed sequentially by 12 April 2024
(draft judgment sent to the parties' legal advisers by email dated 1 August 2024)
Introduction and background
This is my judgment following the trial (liability only) of an unfair prejudice petition presented pursuant to s.994 of the Companies Act 2006 (“ the 2006 Act”) alleging that the affairs of the Fifth Respondent, Brand Evolution Limited (“ the Company”), have been conducted in a manner unfairly prejudicial to the interests of the Petitioner, Mr Dean Banfield (“ P”), as a member of the Company.
P, Mr Paul Edwards (“ R1”), Mr Neil Giles (“ R2”), Ms Emma Fisher (“ R3”) and Mr Bart Cheung (“ R4”) all worked together for several years at Design One Limited (“ DOL”), which was a graphic design company providing branding and marketing services.
With effect from 4 August 2010, DOL was placed into administration and the workforce made redundant. P, R1, R2, R3 and R4 (“ the Founders”) decided to continue to work together by acquiring the business of DOL through the Company, which was incorporated on 5 August 2010.
By an agreement dated 23 August 2010, the joint administrators sold the assets of DOL to the Company for the sum of £15,000.
The Founders were all appointed directors of the Company. 1
The Founders each contributed working capital of £5,000 save for R3, who contributed £250. The original Articles of Association divided the Company's shares into:
a. P ordinary shares (“ Ownership Shares”), which conferred rights to vote and to participate in any income/capital distributions declared on this class of share; and
b. Alphabet ordinary shares (“ Alphabet Shares”), which conferred the right to receive income distributions declared on this class of share.
Reflecting the Founders' capital contributions, the P ordinary shares were allocated 24.75% each save for R3, who received 1%. Each Founder was also allotted a single Ownership Share (A to E). The Company's former accountant, Bernard Rogers, explained in his written evidence that:
“[6.] ….. The P shares were the ownership shares, whilst the A to E shares were designed for paying out dividends and a class was allocated to each of Dean, Paul, Neil, Bart and Emma. The shareholders would draw monthly dividends as agreed between themselves. I had no input into this process.
These monthly dividends were essentially the equivalent of the salaries for the directors and, as I understood, were agreed to reflect the differing contribution and roles of the individuals. The directors did take a salary up to the personal tax allowance as well and this was structured to ensure their record of national insurance payments was maintained.”
The ownership structure of the Company was such that control could only be exercised by a minimum of 3 of the Founders, and so Mr Rogers recommended that the Founders put in place a shareholders' agreement. Newsome Vaughan LLP Solicitors (“ Newsome Vaughan”) were instructed to draft the shareholders' agreement with P and R1 being the primary points of contact with Newsome Vaughan.
The Petition claims that:
“[14.] At the shareholders meeting on 23rd June 2011, a draft shareholders' agreement drafted by Newsome Vaughan was presented to the meeting for consideration (the “Shareholders’ Agreement”). Confirming within an email from the Petitioner to David Lee 12th March 2014 ‘we are finally agreeing to sign the draft shareholder agreement’.
[15.] At the meeting, the shareholders agreed:-
[15.1.] to direct Newsome Vaughan to make some alterations; and
[15.2.] subject to the above approved the shareholders' agreement.
[16.] The Shareholders' Agreement was not signed by the shareholders at that point or subsequently.
[17.] At subsequent meetings of shareholders and meetings of directors, from October 2011 onwards (at least once a year), the Shareholders' Agreement was referred to and relied upon as a binding agreement, even though it did not bear wet signatures from each shareholder.
[18.] The Petitioner relied upon that common understanding between the parties and therefore did not insist that all shareholders subscribe to the Shareholders' Agreement with a wet signature.
Whilst it is acknowledged that there were discussions about the possibility of a shareholders' agreement, R1, R2, R3 and R4 deny that an agreement was ever reached.
From 6 April 2016, the Government introduced a new dividend tax regime, which included a tax free annual allowance of up to £5,000. As a consequence of this change, the Company's Articles of Association were amended to re-structure the holdings of the Alphabet Shares as follows:
a. P's allocation to be held between P, his wife and his son;
b. R1's allocation to held between R1, his mother, his father and a friend;
c. R2's allocation to be held between R2 and his wife;
d. R3's allocation to be held between R3 and her son; and
e. R4's allocation to be held between R4, his father and his mother.
It is P's pleaded case that:
a. As a result of the breakdown of the personal relationship between him and R1, P began looking for alternative employment and was finally offered a job with Severn Trent Water.
b. P began to negotiate his exit from the Company. “Around early 12 March 2018”, the Founders met and it was verbally agreed that –
i. P would sell his shares, which would be offered to his co-shareholders and the Company;
ii. P's shares would be valued using the mechanism set out in the shareholders' agreement;
iii. the sale and purchase of P's shares would take place after the valuation process had been completed; and
iv. P would resign as director forthwith and await the outcome of the valuation process.
Whilst R1 — R3 acknowledge that there were some discussions about the possibility of P's shares being acquired, they and R4 deny that there was ever any agreement that they or the Company would do so.
On 3 April 2018, P gave notice of his resignation as a director of the Company.
On 9 April 2018, P ceased working for the Company and commenced employment at Severn Trent Water.
On 10 April 2018, Angelo Moreira (“ Angelo”), who was already employed by the Company as lead programmer, was appointed a director of the Company.
On 25 April 2018, the Company's Articles of Association were again amended to allot Alphabet Shares to Angelo and his wife.
On P's instructions, BSS & Co valued P's shareholding as at 30 June 2018 in the sum of £148,200. A copy of that valuation was sent to the Respondents.
Mr Rogers was instructed to prepare a valuation on behalf of the Company of P's shareholding, which Mr Rogers valued in the sum of £23,689. Mr Rogers expressed the view that BSS & Co had mistakenly failed, when calculating maintainable profits, to adjust the directors' remuneration to reflect proper commercial/market rates. Mr Rogers again noted in his valuation that:
“As is common in small companies, [the Company] uses ‘alphabet’ series of shares as a basis for paying monthly remuneration. The directors and Shareholders each draw an agreed monthly amount which is in effect their salary. The amounts differ depending on their individual contribution to the success of the company.”
On 15 February 2019, R4 resigned as an employee of the Company but remained as a director of the Company until 11 October 2019 when he resigned his directorship.
The Petition was issued on 22 September 2022.
The non-binding estimates of the value of P's shares subsequently filed for the purposes of these proceedings were:
a. P – £177,840.
b. R1, R2 and R3 — £26,000.
c. R4 — £57,000.
On those estimates, the amount in dispute appears to be some £150,000. The case was not subject to costs budgeting, and the parties have together incurred disproportionate legal costs well in excess of the amount in dispute. Whilst hindsight is of course a wonderful thing, I consider it unfortunate that this case was not listed for a Chancery Financial Dispute Resolution (“ Chancery FDR”) appointment in an attempt to settle the case at an early stage and before significant costs were incurred. The judge conducting a Chancery FDR acts as both a facilitator (mediation) and an evaluator (early neutral evaluation), which combination is particularly effective in resolving disputes involving parties who previously enjoyed a personal relationship that has now broken down. The Chancery FDR procedure has been copied from the procedure applicable in financial remedy proceedings between divorcing spouses, and unfair prejudice petitions are themselves frequently described as “commercial divorces”.
The hearing bundles extended to 2240 pages, the legal authorities bundles extended to 1174 pages and the written submissions of the parties' counsel extended to 104 pages. I am unable in the course of this judgment to refer to all the evidence and arguments relied upon by the Founders, but I have taken it all into account in reaching my decision.
Issues for determination
At the close of the evidence at trial, P abandoned...
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