Summary

Where a Companies Act 2006 s.994 petition did not contain any allegations of unfairly prejudicial misconduct on the part of a deceased shareholder, who was a respondent to the petition, references to the deceased's estate in the prayer for relief were struck out. In addition, the relief sought against the estate was manifestly excessive.

Facts

The executrix of an estate applied for an order striking out references to the deceased in the prayer for relief and points of claim to a Companies Act 2006 s.994 petition.

The deceased had held 5% of the B class shares in a property company. The A shares were owned equally by the petitioner, who was also a property development company, and the first respondent (R1). The company had borrowed money in order to obtain the lease of, and develop, a hotel. The petitioner alleged that R1 set up a new company, the fourth respondent (R4), to take over the project from the company without the petitioner's permission. R1 was the sole director of R4, and two of his sons held 95% of the shareholding. R1 subsequently resigned and was replaced by his sons. Five per cent of the shares in R4 were transferred to the deceased. The petitioner brought a s.994 petition, to which the deceased was a respondent. Allegations of unfairly prejudicial conduct were made against R1, but not against the deceased: the only allegation was that he held 5% of the B class shares in R4. He died in 2016. The sole relief claimed was an order that, jointly and severally with R1, the deceased's estate buy all of the petitioner's shares in the company.

The executrix submitted that (1) the references to the deceased should be struck out on the basis that no allegations of unfairly prejudicial conduct were made against him, and consequently there was no prospect of obtaining the relief claimed against the estate; (2) the relief sought was so manifestly excessive that no court would grant it. The petitioner submitted that the judge should make no order until the next hearing to decide what, if anything, the estate should pay.

Held

Allegations of unfairly prejudicial conduct - All the factual allegations in the petition had to be presumed to be made out, but a petitioner under s.994 had to plead and prove that the respondent concerned was directly or indirectly conducting a company's affairs in an unfairly prejudicial manner, Fildes Bros, Re [1970] 1 W.L.R. 592 applied. The petition as it stood did not contain any allegation against the deceased that he had so acted or had assisted R1 to do so. The court did not accept that the petitioner had alleged that the deceased had knowingly received proceeds of R1's alleged misconduct. There was no allegation of any sort of knowledge on the part of the deceased concerning R1's conduct, must less of him receiving the shares in R4 in order to compensate him for the loss of value of his shares in the company as a result of R1's transfer of the hotel project to R4 (see paras 9, 11, 14 of judgment).

Manifestly excessiveremedy - The relief sought had to be proportionate to the unfairly prejudicial conduct complained of, and in an appropriate case a respondent was entitled to seek to strike out the relief claimed as being excessive, if he could show that the likelihood of a trial judge granting it was so remote that the case could be described as hopeless. It was obvious that a trial judge would not grant the relief claimed against the estate on the basis of the allegations made. If such a relief were made it would potentially expose the estate to purchasing the petitioner's entire shareholding at a higher price than what they were worth where the deceased only held 5% of the shares at his death. It was difficult to see how the relief claimed could be regarded as even arguably proportionate given what was alleged against the deceased (paras 12, 15).

When an order should be made - The instant application could have been brought earlier, but that did not justify leaving it to be dealt with at a later date and exposing the parties to avoidable costs. It defied common sense to refuse to allow the saving of time and cost simply to punish a party for failing to apply earlier than it had for relief it was otherwise plainly entitled to,Goodwill v British Pregnancy Advisory Service [1996] 1 W.L.R. 1397 followed. Further, the petitioner had not alleged that the deceased had received the shares in R4 knowing or believing that R1 was acting in a manner that was unfairly prejudicial to the interests of the company's members. Therefore, it would not be open to the judge at the next hearing to reach such a conclusion (paras 17-18).

Conclusion - The reference to the deceased's estate in the petition and the prayer to the points of claim were struck out (para.20).

Application granted