Re Tobian Properties Ltd
| Jurisdiction | England & Wales |
| Date | 2013 |
| Year | 2013 |
| Court | Court of Appeal (Civil Division) |
Company - Unfair prejudice - Conduct of affairs - Petitioner alleging that director’s remuneration excessive and amounting to unfairly prejudicial conduct - Judge holding remuneration excessive but not unfairly prejudicial conduct since petitioner could have discovered it earlier from filed accounts - Whether requirement for shareholder diligence - Whether failing to read filed accounts disentitling shareholder from relief -
The petitioner was a minority shareholder of the third respondent company. The first respondent director of the company held the remaining shares save for one. While the company traded the petitioner took no part in the running of it nor had he received or requested copies of its annual accounts. The company entered creditors’ voluntary liquidation and the accounts for the previous five years disclosed that in the latter three years substantial losses had been made and that the director had drawn large amounts of remuneration. The petitioner presented a petition under section 994 of the Companies Act 2006F1 seeking relief on the ground, inter alia, that the director’s remuneration had amounted to unfairly prejudicial conduct to him in his capacity as a member. The judge held that in the circumstances the remuneration had been excessive and that the director had fixed the amount by reference to his personal interests without regard to those of the company. None the less the judge dismissed the petition, holding that since the petitioner could by diligence have found out about it earlier by, for example, obtaining a copy of the annual accounts from Companies House, he could not claim that the remuneration had been unfairly prejudicial to him.
On the petitioner’s appeal—
Held, allowing the appeal, that there was nothing in the statutory provisions or in principle or in authority which imposed a requirement for diligence on shareholders concerning the manner in which they could enforce the liability of directors for wrongs to their company; that, moreover, the limitations imposed by the Companies Act 2006 on shareholders in relation to their remedies thereunder did not include a failure to read the filed accounts at Companies House; that, therefore, the judge’s approach had been wrong in principle as regards shareholder diligence and was additionally flawed in failing to find that the fixing of remuneration by the director in relation to his own interests, rather than the company’s, amounted to unfair prejudice; and that, accordingly, the judge had been wrong to dismiss the petition (post, paras 31–33, 50, 58, 60, 61).
The following cases are referred to in the judgment of Arden LJ:
Company (No 00709 of 1992), In re A; O’Neill v Phillips [
Gamlestaden Fastigheter AB v Baltic Partners Ltd
Irvine v Irvine
Meinhard v Salmon (
Murad v Al-Saraj
The following additional cases were cited in argument:
Allmark v Burnham
Company, In re A, Ex p Burr [
Company (No 004415 of 1996), In re A [
Elgindata Ltd, In re [
Experience Hendrix LLC v PPX Enterprises Inc
Pell Frischmann Engineering Ltd v Bow Valley Iran Ltd
Southern Counties Fresh Foods Ltd, In re
Stadium Capital Holdings (No 2) Ltd v St Marylebone Property Co plc
Sunrise Radio Ltd, In re
APPEAL from Judge Hodge QC sitting as a High Court judge
By a petition presented on 16 November 2009 by the petitioner, Geoffrey Maidment, against the first respondent, Alan Attwood, the second respondent, Nicola Heard, and the third respondent, Tobian Properties Ltd (“the company”), the petitioner sought relief from unfairly prejudicial conduct under section 994 of the Companies Act 2006. On 29 July 2011 Judge Hodge QC dismissed the petition, holding that, inter alia, the payment of excessive remuneration to the first respondent had not been unfairly prejudicial.
By an appellant’s notice filed on 23 September 2011, pursuant to permission to appeal granted on 7 February 2012 by the Court of Appeal (Arden and Moses LJJ), the petitioner appealed the order of Judge Hodge QC on the grounds, inter alia, that (1) having held that the remuneration which the second respondent had caused the company to pay him had been excessive, the judge had been wrong to go on to hold that such excessive remuneration had not amounted to conduct unfairly prejudicial to the petitioner’s interests as a member; (2) the judge had been wrong to hold that the first respondent’s conduct in causing Epyc Ltd to trade under the “Oliver Jaques” name (the name under which Tobian Properties Ltd traded) had not been conduct unfairly prejudicial to the interests of the petitioner as a member of the company; (3) having held correctly that the acquisition by Epyc Ltd of the business name, trade connections and other assets of the company, prior to the company’s liquidation, had constituted prejudicial conduct, the judge had been wrong to go on to hold that such conduct was nevertheless not unfair; and (4) the judge had erred in principle in his interpretation of, and reliance on, Gamlestaden Fastigheter AB v Baltic Partners Ltd [2007] Bus LR 1521.
By a respondent’s notice filed on 17 February 2012 the first respondent sought to overturn the judge’s finding on excessive remuneration on the basis that it was unsound but sought to uphold the judge’s ultimate decision to dismiss the petition.
The facts are stated in the judgment of Arden LJ.
Thomas Grant and James Sheehan (instructed by
Andrew Clutterbuck (instructed by
The court took time for consideration.
19 July 2012. ARDEN LJ handed down the following judgment.
1 This appeal arises out of the dismissal by Judge Hodge QC of a shareholder’s petition for relief from unfairly prejudicial conduct under section 994 of the Companies Act 2006. By his petition, Geoffrey Maidment, the petitioner, sought relief on the grounds that the affairs of Tobian Properties Ltd (“Tobian”) had been conducted in a manner which was unfairly prejudicial to him. The issue to be decided on this appeal is whether the judge was correct in law to rule that the three elements of conduct which he found had occurred, including the payment of excessive director’s remuneration, amounted in law to “unfair prejudice” for the purposes of section 994. First, the relevant facts.
2 Mr Maidment holds 25% of the issued shares of Tobian. He acquired his interest when Mr Attwood acquired a 50% holding pursuant to a share purchase agreement dated 2 March 2000. Mr Attwood agreed to hold half of those shares for Mr Maidment. Mr Attwood became a director with the other 50% shareholder, Mr S Harris. On 28 June 2001, Mr Attwood acquired Mr Harris’s shares. Mr Harris then ceased to be a director and Mr Attwood became, and at all material times remained, the sole director of Tobian. Mr Maidment’s shares were not registered in his name until August 2002. On 29 July 2008, Mr Attwood transferred one share to the company secretary, the second respondent, Ms Nicola Heard.
3 So long as it traded, Tobian carried on business as an estate agent under the name of “Oliver Jaques”. I will refer to this as “Tobian’s trading name”. Tobian had four offices in the docklands area of London and elsewhere. Mr Maidment took no part in the running of Tobian. He neither received nor requested copies of its annual accounts. For various reasons, there was no contact between Mr Maidment and Mr Attwood between December 2003 and December 2008. They were also shareholders in another company, Annacott Holdings Ltd (“Annacott”). Their business relationship turned sour in about August 2001. Tobian entered creditors’ voluntary liquidation in October 2008. The estimated deficiency as regards creditors is between £199,000 and £259,000.
4 The accounts for Tobian’s financial years ended 30 September 2002 to 2007 show that Mr Attwood drew large amounts of remuneration. As I have concluded, for the reasons given in paras 44 to 49 below, that there should be a further hearing in this case to determine the amount of the loss to Tobian resulting from these payments, it is sufficient to give a few key figures to indicate the scale of the remuneration drawn.
5 Tobian had six financial years (other than 2008) when Mr Attwood was sole director. In three of those years, profits were made but on a declining basis: 2002: £78,119, 2004: £62,291, 2006: £29,643. In the three other years, substantial losses were made: 2003: (£169,508); 2005: (£100,370); 2007: (£121,594). Mr Attwood’s total remuneration in these six years, including benefits in kind, was £779,110, which gives an average figure of approximately £130,000 for each of the six years.
6 I will take two years as a sample. In 2002, Mr Attwood paid himself remuneration of £170,750, plus benefits in kind of £10,777 (total: £181,527). In the following year, he drew £145,000 as remuneration. While this sum was smaller than the previous year’s figure, it is to be noted that in the same year, shareholders’ funds went down from £133,540 to (£9,680) and there was a loss of £169,508.
7 There are other pointers to the conclusion that this remuneration was disproportionate. Prior...
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