Unfair prejudice petition comes to fruition

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In Thomas v Dawson and another [2015] EWCA Civ 706, the Court of Appeal upheld a first instance decision ordering an option for one shareholder to purchase the other shareholder’s single share for a price of £55,000, despite an expert valuing the business as balance sheet insolvent.

Facts

The petitioner (Mr Thomas) and respondent (Ms Dawson) were the only directors and shareholders in a residential care home company, holding a share each.  Both had made unauthorised financial withdrawals from the company and litigation for the recovery of the money followed.  Each party was ordered to reimburse the money withdrawn –  Ms Dawson was to repay over £28,000.

Mr Thomas also issued a petition for unfair prejudice, claiming that Ms Dawson had refused to agree to pay him a proper salary and had refused him access to the company’s funds.  It was evident that their personal relationship had broken down.

The petition was successful at the High Court and Mr Thomas was granted an option to purchase Ms Dawson’s single share.  The Judge valued the single share at £55,000 despite an expert valuation determining the company to be balance sheet insolvent.  The Judge explained that the figure took into account the £28,416.83 owed by Ms Dawson and this was to be paid directly to the company, to discharge Ms Dawson’s liability to the company.

 

Appeal

Mr Thomas appealed, arguing that the share price should be nominal consideration, with Ms Dawson remaining liable to repay over £28,000.

In spite of the valuation evidence, the Court of Appeal held that the Judge had been correct in attaching a positive value to Ms Dawson’s share.  The figure represented the increased drawings that Mr Thomas could now take in Ms Dawson’s absence, in addition to the overall control he was to obtain over the company – which was clearly of real value to him.

The Court of Appeal felt that the order to pay for Ms Dawson’s liability was an imaginative solution to ensure money would be recovered by the company – a company which was to be under Mr Thomas’ total control.

Ultimately, the “unusual” valuation of the Judge was deemed to be in accordance with the wide discretion afforded to the Court under s996, and the appeal was dismissed.

 

Comment

This case is a useful reminder of the range of remedies which can be ordered by the Court under an unfair prejudice petition.  It is similarly important for demonstrating the wide discretion possessed by the Court – which includes discounting expert valuation evidence.  Those who feel they have suffered prejudice are advised to take legal advice on the correct approach to take.  For more advice on how we can help you resolve shareholder disputes, contact Tom Smith, a solicitor in our Dispute Resolution department with extensive experience in handling commercial litigation cases, on 0800 689 0831, or send an enquiry.

Tom Smith

About Tom Smith

Tom is a Partner and Head of the Dispute Resolution Department at Forbes Solicitors. Tom’s blogs cover his specialisms of business disputes involving commercial contracts, shareholders, partnerships, share sales and warranties, banking issues, restrictive covenants and professional negligence.
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