Stuart Wells v Paul Hornshaw
| Jurisdiction | England & Wales |
| Judge | Mr Justice Adam Johnson |
| Judgment Date | 19 February 2024 |
| Neutral Citation | [2024] EWHC 330 (Ch) |
| Court | Chancery Division |
| Docket Number | Case No: CR-2019-LDS-000783 |
[2024] EWHC 330 (Ch)
Mr Justice Adam Johnson
Case No: CR-2019-LDS-000783
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURT IN LEEDS
INSOLVENCY AND COMPANIES LIST (ChD)
IN THE MATTER OF TRANSWASTE RECYCLING AND AGGREGATES LIMITED
AND IN THE MATTER OF THE COMPANIES ACT 2006
Leeds Combined Court Centre
1 Oxford Row, Leeds, LS1 3BG
Paul Chaisty KC (instructed by Ward Hadaway LLP) for the Petitioner
Thomas Grant KC and Gabriella McNicholas (instructed by Milners Solicitors) for the Respondents
Hearing dates: 18, 19, 20, 21, 22, 25, 26, 27, 28, 29 September, 02, 03, 04, 05, 09 and 10 October 2023
Approved Judgment
This judgment was handed down remotely at 10.30am on Monday 19 February by circulation to the parties or their representatives by e-mail and by release to the National Archives.
CONTENTS
| Paragraph | ||
| I. | Introduction & Background | 1 |
| II. | Some Initial Points | 19 |
| III. | The Trial and the Witnesses | 23 |
| IV. | The History in More Detail | 31 |
| TRAL's Business Model | 32 | |
| Derek Taylor | 33 | |
| Transwaste Services Limited | 34 | |
| The 2003 Shareholdings | 35 | |
| Management Fees | 38 | |
| Humber Properties Limited | 39 | |
| The Move to Melton | 41 | |
| The 2008 Shareholdings | 42 | |
| Mr Taylor Retires | 43 | |
| Wauldby Associates Limited | 45 | |
| Seneca Global Limited/Caird Peckfield Limited | 48 | |
| The Elliotts: Seneca Investments Limited | 51 | |
| The Hornshaws' Interests | 52 | |
| Mr Clark's Valuation (including Adjustments) | 54 | |
| V. | The Petition | 61 |
| Share Dilution | 62 | |
| Payments to Associated Companies of the Hornshaws | 64 | |
| Payments to the Elliotts/Associated Companies of the Elliotts | 67 | |
| Benefits Paid to the Hornshaws | 68 | |
| Investments in the Melton Premises | 69 | |
| Personal (and other) Loans and Guarantees | 71 | |
| Failure to Declare Dividends | 72 | |
| The Attero Transaction | 73 | |
| VI. | Issues | 74 |
| VII. | The 2008 Dilution | 76 |
| The 20 June 2008 Meeting | 83 | |
| Mr Wells' Case | 83 | |
| The Alternative Case | 91 | |
| Discussion with Mr Thompson | 104 | |
| VIII. | Mr Wells' decision to leave/the SHA | 108 |
| Mr Wells' Decision to Leave TRAL | 108 | |
| The Mechanism in Cl. 7 of the SHA | 111 | |
| Did the Parties Agree to Bypass Cl. 7? | 117 | |
| The Legal Effects of Clause 7 | 119 | |
| IX. | Mr Clark's Valuation | 121 |
| X. | Payments to Associated (and other) Companies | 131 |
| Were the Payments Made? | 132 | |
| Were the Payments Excessive or Uncommercial? | 136 | |
| Payments identified by Mr Clark | 137 | |
| Other Payments | 139 | |
| XI. | Conflict of Interest and Account of Profits? | 144 |
| The Argument | 144 | |
| Section 177 CA 2006 | 147 | |
| What Did Mr Wells Know? | 149 | |
| TWS | 150 | |
| Wauldby | 151 | |
| Caird Peckfield/Seneca Global | 164 | |
| The Counter-Argument | 168 | |
| Discussion and Analysis | 169 | |
| XII. | Other Allegations of Mismanagement | 181 |
| Benefits Paid to the Hornshaws | 183 | |
| Investments in the Melton Premises | 184 | |
| Personal (and other) Loans and Guarantees | 185 | |
| Personal Loans | 185 | |
| Knightsbridge Loan | 186 | |
| Caird Peckfield Guarantee | 187 | |
| The Attero Transaction | 191 | |
| XIII. | Non-Payment of Dividends | 192 |
| XIV. | Unfair Prejudice | 201 |
| Periods pre-September 2015 | 202 | |
| Mr Wells' decision to leave | 202 | |
| Prejudice | 203 | |
| Was the prejudice unfair? | 206 | |
| Periods Post-September 2015 | 216 | |
| Matters are left to drift | 217 | |
| Was there unfair prejudice? | 221 | |
| Directors' Loan Accounts | 225 | |
| Dividends | 226 | |
| The Attero Transaction | 236 | |
| The Valuation Exercise | 237 | |
| XV. | Remedy | 241 |
| General | 241 | |
| Order | 244 | |
| Valuation Date | 246 | |
| Minority Discount | 250 | |
| Mr Wells' Arguments | 251 | |
| Discussion & Conclusion | 253 | |
| XVI. | Conclusion and Disposal | 267 |
I. Introduction & Background
The is an unfair prejudice Petition brought under s. 994 of the Companies Act 2006 (“ CA 2006”).
The Petitioner is Mr Stuart Wells. The company in question is Transwaste Recycling and Aggregates Limited (“ TRAL”), a waste management business based in Hull.
Mr Wells is the registered holder of 14.3% of the issued shares in TRAL. The remaining shares are held by two brothers, Paul and Mark Hornshaw: they each hold 42.85% of TRAL's issued share capital.
Mr Wells was a statutory director of TRAL between 2003 and 2022. Paul and Mark Hornshaw were directors during the same period, and remain in post.
Events in September 2015 caused Mr Wells to wish to part company with TRAL, and specifically to relinquish his shareholding. What happened was that on Wednesday 23 September 2015, TRAL's premises in Melton, Hull were raided by HMRC and the police. HMRC suspected a fraud involving the non-payment of landfill tax. Paul and Mark Hornshaw were arrested. In the end, no charges were brought and the matter was dropped; but it took until 2019 for it to be sorted out.
In the immediate aftermath of the raid, on Saturday 26 September 2015, Mr Wells sent an email saying that after thinking long and hard about it, he had decided to leave TRAL. His email gave the impression that his involvement would terminate at the end of November 2015, following a notice or handover period. Mr Wells indeed ceased working for TRAL after the end of November 2015 and ceased to be paid his salary as an employee. He remained a statutory director, however, having received advice that it would be more tax efficient for him to relinquish his directorship only once the question of his shareholding was sorted out. The Hornshaws agreed.
The shareholders in TRAL had signed a Shareholders' Agreement (the “ SHA”) in 2005. This contained a provision, in cl. 7, dealing with what was to happen if one of the shareholders wished to cease being an employee of the company or wished to sell his shares. Cl. 7 requires the departing shareholder to make an offer to sell his shares to the remaining shareholders (referred to as a “ Sale Offer”), at a price (referred to as the “ sale price”), to be calculated by an accountant, “ by reference to the standard and historical accounting practices of the Company.”
There is a dispute about what, precisely, was done as regards compliance with cl. 7, but one thing that is clear is that Mr Stuart Clark, TRAL's auditor, conducted a valuation exercise, with a view to valuing Mr Wells' shareholding as at 30 September 2015. As I will explain further below, one complication he encountered is that TRAL's business model involved it contracting with other companies associated with the Hornshaw brothers. Mr Clark's work included considering such related party transactions and requiring to be satisfied that they were on commercial terms. In many instances he thought they were, but in some others he was not persuaded, and made adjustments accordingly.
There was some delay in Mr Clark completing his valuation, caused in part by complications arising from the HMRC raid and investigation into TRAL. In the end, however, Mr Clark produced a Report dated 24 June 2016, based on figures up to 31 December 2014.
Mr Clark came to an overall value for TRAL of £15,389,964. On the face of it, 14.3% of that overall figure would have resulted in a value for Mr Wells' shareholding of £2,200,335.85. But Mr Clark also applied a discount to reflect the fact that Mr Wells had only a minority stake in TRAL: his discount was 75%, giving a figure for Mr Wells' shareholding of £550,191.
Mr Wells was unhappy with this valuation and made a number of complaints about it via a valuation expert he had engaged, a Mr Neil Jenneson. A principal complaint was that no discount should have been applied to reach a value for Mr Wells' shareholding, because TRAL was a quasi-partnership company, and so a discount was inappropriate. Another complaint was that Mr Clark had not properly completed the job he had been given, because TRAL's audited accounts for the 18 month period to 30 June 2015 were available by June 2016, but Mr Clark's valuation had not taken account of them: as noted, he had used figures only up to December 2014. As it happened, Mr Clark agreed with the latter point and said in an email that “ [t]he delays in producing this report are such that the figures are out of date.” He proposed that a new valuation be prepared, “ by an independent expert to be jointly funded and agreed by both parties…”.
This proposal was not taken up. Instead the parties' positions hardened and eventually, in January 2017, Rollits solicitors, acting on behalf of Mr Wells, sent a letter before claim, attributing a value of £7m to Mr Wells's shareholding. This letter also made the complaint that Mr Wells had effectively been misled in 2008 into agreeing a reduction of his then shareholding in TRAL, and said that in consequence he should be regarded as holding not 14.3% of TRAL's issued shares, but instead 24.9%.
Unfortunately matters were left to drift, and the parties continued in a state of limbo. Although he had stopped working for TRAL and was no longer receiving a salary, Mr Wells remained a shareholder and was listed as a director at Companies House. The Hornshaws meanwhile continued to manage TRAL, in certain respects in a manner which Mr Wells would later come to complain about. For one thing, although Mr Wells had received modest dividends of £14,000 per year in the calendar years 2012 and 2013, thereafter TRAL declared no dividends. At the same time, the Hornshaw...
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