Petition Of Charles Martin Against Thomas Hughes And Others
| Jurisdiction | Scotland |
| Judge | Lord Clark |
| Neutral Citation | [2021] CSOH 109 |
| Date | 26 October 2021 |
| Docket Number | P416/19 |
| Court | Court of Session |
| Published date | 26 October 2021 |
OUTER HOUSE, COURT OF SESSION
[2021] CSOH 109
P416/19
OPINION OF LORD CLARK
in the petition of
CHARLES MARTIN
Petitioner
against
(FIRST) THOMAS HUGHES
(SECOND) HENRY CLARK SEDDON
(THIRD) RAM 232 LIMITED
Respondents
Petitioner: Gillies Sol Adv; Pinsent Masons LLP
Respondents: MacColl QC, McKenzie; Wright, Johnston & Macke nzie LLP
26 October 2021
Introduction
[1] The petitioner is a minority shareholder in a limited company which provides
accountancy services. It was previously named Gerber Landa and Gee Limited and is now
RAM 232 Limited (“the Company”). The business formerly operated as a partnership. The
petitioner seeks orders under sections 994 and 996 of the Companies Act 2006 on the
grounds that the affairs of the Company have been conducted in a manner that was and is
unfairly prejudicial to the interests of the members, including himself. He seeks relief in the
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form of a compulsory purchase of his shares in the Company by the respondents. The
respondents deny any unfairly prejudicial conduct. The parties are also in dispute as to the
fair value of the petitioner’s shares, based on the evidence of their respective experts, should
the shares require to be purchased. The case called before me for a proof before answer,
with six days of evidence followed by one day of oral submissions.
Background
[2] On the evidence, and in part agreed by joint minute, the factual background is as
follows. The Company was incorporated on 18 April 2013. Its original directors and
shareholders were the petitioner, the first respondent (Mr Hughes), the second respondent
(Mr Seddon) and James Murphy. The petitioner, Mr Hughes and Mr Murphy each came to
hold 1500 shares and Mr Seddon held 500 shares. The four individuals were previously the
partners in the partnership, with the trading name of Gerber Landa & Gee. On
21 November 2013, shortly before the transfer of the business, assets and goodwill of the
partnership to the Company (which occurred on 1 December 2013) the directors and
shareholders of the Company entered into a Minute of Agreement. The Minute of
Agreement dealt primarily with the repayments of directors' loans which arose from the
disposal of the goodwill of the partnership to the Company. The goodwill figure was
£1,100,000 and the allocation of goodwill payments was £350,000 to the petitioner,
Mr Hughes and Mr Murphy and £50,000 to Mr Seddon. The Minute of Agreement states
that on exit, a departing director would be entitled to "repayment of his share value" in
addition to his loan account.
[3] Incorporation of the Company had been under consideration for a period of time, but
the matter was brought to a head as a protective measure as a consequence of a police
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investigation into the partnership. The investigation arose as a result of an entity described
as Mathon Finance going into administration. The partnership had been the auditor of two
companies related to that entity, Mathon plc and Bathon Limited. The police investigation
was a concern for the directors of the Company. Mr Murphy had been involved with the
auditing of these companies. The companies were associated with Heather Capital Ltd,
whose liquidators were involved in various actions against, among others, professional
advisors. Material was discovered which the other directors considered indicated
misconduct on the part of Mr Murphy. It was made clear to Mr Murphy by all of his fellow
directors that he required to resign from the Company immediately and that the balance due
on his director’s loan account was subject to review in light of any adverse financial
consequences arising from the Mathon affair. Mr Hughes and Mr Seddon considered that
the Company remained exposed to a financial claim arising from Mr Murphy’s conduct. On
20 March 2015 at a meeting between the original directors and shareholders Mr Murphy
resigned as a director of the Company and agreed that his shares could be transferred to the
other shareholders. The shareholding of the Company became 2,142 ordinary shares for the
petitioner and Mr Hughes and 716 ordinary shares for Mr Seddon. That remains the
position. Mr Murphy remained a creditor of the Company in terms of his director's loan
account. The debt continued to be paid to Mr Murphy from March 2015 until approximately
August 2017. The payments stopped after Mr Murphy was investigated by the Institute of
Chartered Accountants in Scotland ("ICAS") and the Investigation Committee determined
there was sufficient evidence to establish a charge of professional misconduct.
[4] In 2017 the petitioner, Mr Hughes and Mr Seddon were attempting to implement a
succession plan which had been under consideration for a few years. The succession plan
envisaged a management buyout (“MBO”) with the three directors remaining as consultants
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