Muldoon Britton settle high value share ownership dispute for Italian national

July 30, 2016

Background

Our Michael Muldoon acted for an Italian warehousing business in a shareholder dispute. Our client and ex-husband agreed to embark on an enterprise with the Defendant which would facilitate the transport of goods from the UK to Italy and thereafter distribute the goods throughout Italy. The company was owned on a 50:50 basis between both parties.

Dispute

A dispute arose in or around 2006/2007 over the payment of bonuses to staff. This dispute led to the resignation of our client as a director. From this point onwards both our client and her ex-husband were denied access to any accounts or other information pertaining to the company. Further, our client was not provided with any dividends and was not invited to any shareholder meetings.

It later became apparent that the Defendant was endeavouring to conduct business with a third party in Italy in an attempt to ‘cut out’ our client completely. The Defendant was believed to have been moving assets from the Company to his own separate business. The Defendant also denied that our client owned the 50% shareholding claimed.

The Relevant Law in This Area

Derivative Action

It was apparent early on that it would be open for our client to pursue derivative pursuant to section 261 of the Companies Act 2006. A derivative action case is brought by a shareholder on behalf of a corporation against a third party. Often, the third party is an insider of the corporation, such as an executive officer or director as was the case in this matter.

As our client had been denied access to the accounts and other relevant information, evidentiary support was difficult to obtain. It was resolved that Muldoon Britton would seek disclosure from the Defendant pursuant to section 423 of the Companies Act 2006 which made it a requirement for the Defendant to send to our client the annual accounts of the Company as well as the directors’ report.

Pending the provision of documentary evidence it was proffered that there may have been cause for pursuing actions for breach of trust and/or breach of fiduciary duty and/or breaches of one or more of the following statutory duties;

Section 172 – duty to promote the success of the Company;
Section 174 – duty to exercise reasonable care, skill and diligence;
Section 175 – duty to avoid conflicts of interest;
Section 177 – duty to declare an interest.

One of the main advantages of bringing a derivative action is the ability to seek a costs indemnity from the Company. The present case would have been suitable for a costs indemnity following the principles set out in Wallersteiner v Moir (No 2)

[1975] QB 373. The Court could, however, limit the indemnity in order for it not to cover any adverse costs risk as in Kiani v Cooper [2010] EWHC 577 (Ch).Whilst a derivative action would allow for the Company to recover its assets and/or compensate its loss, our client would not have been able to seek the removal of the Defendant from their position by way of a derivative action. On that basis it was considered prudent to pursue an action for unfair prejudice.

Unfair Prejudice

Unfair prejudice in UK company law is a statutory form of action that may be brought by aggrieved shareholders against their company. Under the Companies Act 2006 the relevant provision is section 994. Section 994 provides that: “A member of a company may apply to the Court by petition for an order…… on the ground (a) that the company’s affairs are being or have been conducted in a manner that is unfairly prejudicial to the interests of members generally or of some part of its members (including at least himself), or (b) that an actual or proposed act or omission of the company (including an act or omission on its behalf) is or would be so prejudicial.”

It is well settled that breach of fiduciary duty is sufficient basis for an unfair prejudice petition (Re Saul D Harrison & Sons Plc [1994] BCC 475 and Re Southern Countries Fresh Foods Ltd [2008] EWHC 2810 (CH)). Further, there is precedent that breaches of the statutory duties outlined above would constitute unfairly prejudicial conduct, as stated obita by Richards J in Re Coroin Ltd [2012] EWHC 2343).

Process of the Litigation

On review of the case, it was resolved to make an unfair prejudice petition to the Court. Such a petition is made under part 30 of the Companies Act 2006. The Defendant then served their Points of Defence and Counterclaim, which in turn led to Muldoon Britton filing and serving our client’s Points of Reply and Defence to Counterclaim. It was decided between the parties that at this stage it would be prudent to enter into Alternative Dispute Resolution (ADR).

Michael Muldoon represented our client at the mediation. Michael is a skilled and experienced proponent of Alternative Dispute Resolution. At the mediation it was resolved that the Defendant would recognise our client’s ownership of the 50% shares and agreed to buy them back for a substantial six figure sum and pay our client’s legal costs. Our client was delighted with the outcome.