Summary

The court granted an interim injunction preventing property developers from refinancing a development without first paying back a loan from a petitioning company, where there was a seriously arguable case that the developers were conducting business which was unfairly prejudicial to the petitioner where flats had been taken off the market without being sold.

Facts

A petitioning company seeking relief under the Companies Act 2006 s.994 applied for interim relief against the respondents (R1-R12).

The petitioner was a minority shareholder in R1 and R2. R4-R6 were subsidiaries of R1 and R2. R7 and R8 were the petitioner's co-shareholders. R9-R12 were various directors of the respondent companies. The petitioner and the respondents had been developing a site in the UK, which involved selling 102 flats. The development was funded by a company (F) and by a shareholder's loan from the petitioner of around £1.3 million. F was owed around £1.7 million. 76 of the units had been sold, 15 units had been "reserved" by R7, which was a co-shareholder with the petitioner, and the remaining units remained unsold. The reserved units were being rented out by a company (HPL), owned by R7, to people associated with the project. The petitioner maintained that it was due to be repaid the loan, which the respondents denied. In April 2019, the petitioner obtained injunctive relief restricting the defendants from disposing of any of the proceeds of sale of any of the flats, which were to be paid into R1's bank account, and from disposing of sums otherwise than in the ordinary course of business. When the matter came back to court, the respondents gave undertakings to that effect. R1 also undertook to grant the petitioner access to relevant bank statements. The petitioner sought an injunction: requiring the respondents to sell the units reserved by R7; replacing the undertakings which the respondents had given to the court in April which it said had been breached; requiring the respondents to identify what sums R7 had received by way of rental income from the units; preventing the respondents from refinancing the development.

The petitioner submitted that entering into new refinance arrangements was unnecessary as there were plenty of other funds which could be realised, and that all the respondents were trying to do was subordinate its loan repayment. It maintained that there was enough money to meet the respondents' liabilities if the reserved properties were purchased rather than reserved, and therefore there was no need to refinance. The respondents submitted that it was necessary to refinance to pay F.

Held

Selling the units - Requiring the sale of the units was an attempt to obtain a mandatory injunction. No proper argument or consideration of the different principles on a mandatory injunction had been discussed. It was not the sort of application which could be made on the hoof without notice, and it was not appropriate to grant it.

Replacing previous undertakings with an injunction - The previous undertakings, which applied only to sums received from purchasers, had not been breached. In the instant application, the petitioner was seeking an injunction which went further and applied to any money received by the respondents generally. The petitioner also already had access to the software used by the respondents to itemise every invoice. There was no basis on which to make an injunction which went further than the undertakings.

Money paid by tenants - The rental money had not been paid directly into the requisite bank account, but was paid first to HPL, which did not have title to the units and so had to have been acting as an agent for an undisclosed principal. It was not right that the money went through HPL; it should be paid directly into R1's bank account.

Refinancing - Applying American Cyanamid, there was a seriously arguable case that the respondents were conducting business which was unfairly prejudicial to the petitioner regarding the reserved units. The circumstances under which the flats had been reserved for HPL, for seven months without any payment being exchanged or completion taking place, while they were rented out was very curious. It was difficult to see how the respondents could be acting in R1's best interests by entering into such a strange arrangement, where properties were taken off the market without payment. No explanation had been provided. There was no reason why F could not be paid back by selling the properties, and so it was difficult to see why refinancing was necessary. Bearing in mind that it was an interlocutory application, the balance of convenience lay in granting an order restraining the respondents from entering finance arrangements without at least agreeing to pay off the petitioner's debt. There were good reasons for thinking there had been conduct that was prejudicial to the petitioner. Although there was a danger that F would enforce its loan, for example by a fixed charge, which might have adverse consequences for the sale of the units, the court ordered that the petitioner's loan should be paid off before the respondents' entered into new financing arrangements.

Application granted in part