Citation

[2009] All ER (D) 127 (Feb)

Hearing Date

11 February 2009

Court

Chancery Division

Judge

David Donaldson QC sitting as a deputy judge of the High Court

Abstract

Company – Member. Chancery Division: The petitioner's petition pursuant to s 459 of the Companies Act 1985 was dismissed in circumstances where he had failed to establish that he had been the victim of any unfairly prejudicial conduct for the purposes of s 459 of the Act.

Catchwords

Company – Member – Unfair prejudice to member's interests – Member alleging unfair prejudice – Whether petitioner succeeding in establishing unfairly prejudicial conduct – Companies Act 1985, s 459.

Summary

In about 1992, the second respondent and his wife entered into a project with another couple, their neighbours for the development of land owned by those neighbours. The second respondent and his wife owned and controlled UCS Ltd (UCS), the first respondent company, which could find funding and organise the development. The corporate vehicle which was used for the development was CE Ltd (CEL), a company already established by the second respondent and his wife. The agreed project involved, inter alia, the transfer of the property to CEL on 1 August 2003; and the construction by CEL of 20 flats in two blocks. The second respondent and his wife had approximately 24 per cent, and UCS about 76 per cent, of the shares in CEL. Both couples were directors. The construction work was to be carried out by CCI Ltd (CCI), which had originally been a trading name of the petitioner, a builder. In 2003, the petitioner transferred 24 of the 100 shares in CCI to the second respondent, retaining the other 76 himself, and the second respondent became a second director of CCI, along with the petitioner.  The management of the financial side of CCI was the role of the second respondent/UCS. The book-keeping for both CEL and CCI was provided by UCS, and specifically by one of its employees. The development project was completed in July 2005. It had been subject to substantial cost overruns and delay in completion of the works, all of which had thrown an additional funding burden on CEL, and behind it, on UCS. With the project at an end, the second respondent and his wife informed the petitioner that they were not prepared to continue on the same basis as before. They had two small pieces of work on their own properties (the two later projects) which provided occupation and monies for CCI and its employees, including the petitioner, but they insisted on becoming 100 per cent shareholders. The petitioner transferred his 76 per cent shareholding to them in August 2005 for £1 a share.

Around the same time he moved to being paid weekly, net of PAYE and NI contributions, a salary equivalent to £40,000; the funds for that, as for CCI's other requirements, came from UCS. On 17 January 2006, UCS transferred 24 shares back to the petitioner. On 6 February 2006, CCI resolved to cease trading. It had no contracts, and was dependent on funding from UCS, which the second respondent and his wife were not prepared to continue, making cessation of trading unavoidable. Shortly afterwards,the petitioner was made redundant and removed as a director of the company. On 16 May 2006, the petitioner presented a petition to wind up CCI on the basis that it was insolvent, and a compulsory winding-up order was made on 4 July 2006. On 20 April 2007, the petitioner filed a petition under s 459 of the Companies Act, alleging that CCI's affairs had been conducted in a manner unfairly prejudicial to him, and seeking an order that UCS and the second respondent should purchase the 24 shares belonging to him at a price valued as at the date when the prejudicial conduct commenced. The petitioner sought to rely on unfairly prejudicial conduct after the transfer of his shares, being August 2005, alleging, inter alia, that: (i) sums which should have been payable to CCI in respect of the development project had been diverted to UCS and /or the second respondent and his wife; (ii) UCS and the second respondent and his wife had diverted to themselves payments due from themselves and/or companies controlled by them in respect of their two later projects; (iii) his removal as director in February 2005 was a breach of the basis of trust and co-operation between himself and the second respondent and his wife; and (iv) the company was not insolvent, and that the presentation of the petition was therefore unfairly prejudicial to him.The petition would be dismissed.In the instant case, the petitioner had failed to establish that he had been the victim of any unfairly prejudicial conduct for the purposes of s 459 of the Act.

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