Khadim Hussain v Allah Hussain & Ors
[2023] EWHC 3080 (Ch)
Mantir Singh Sahota v Albinder Singh Sahota & Ors
19 August 2024
[2024] EWHC 2165 (Ch)
High Court
Five brothers ran a company together. One brother (Albinder) secretly used company money to build a house and wouldn't share financial information with his other brothers. Another brother (Mantir) was also a bit of a bully, but Albinder was mostly to blame for the problems. The judge made Albinder buy out Mantir's share of the company to make things right.
Key Facts
- •Mantir Singh Sahota (petitioner) sought an order under Section 994 of the Companies Act 2006 for the respondents to buy his shares in Corrugated Box Supplies Limited (the Company), claiming unfairly prejudicial conduct.
- •The Company was a quasi-partnership among the Sahota brothers.
- •Allegations included withholding financial information from Mantir, excluding him from management, mismanagement by respondent Albinder, misappropriation of company assets by Albinder, diversion of opportunities by Albinder, incorrect dividend payments, and forged signatures on documents.
- •Respondents denied unfair prejudice, counter-alleging Mantir's disruptive and violent behavior.
- •A significant issue involved payments totaling £1,231,200 to a dissolved company, KT Supplies Limited (KTS).
- •Albinder allegedly used company funds to build a house (Gorway Rd Issue).
Legal Principles
A member may petition the court for an order if a company's affairs are conducted unfairly prejudicial to members' interests.
Companies Act 2006, Section 994(1)(a)
The test for unfairness is objective, considering factors like broken promises, breached agreements, and improper use of fiduciary powers.
Re Saul D Harrison & Sons plc [1994] BCC 475
Prejudice can be non-financial; mismanagement so serious that minimum trust and confidence is lost may suffice.
Re Sunrise Radio Limited [2009] EWHC 2893 (Ch)
Where acts have no adverse financial consequence, proving prejudice can be difficult, especially if the act is a breach of duty to the company, not shareholders.
Re Coroin [2012] EWHC 2343 (Ch)
Petitioner's conduct can be relevant in determining fairness and the remedy.
London School of Electronics Limited [1986] Ch 211; VT Football Assets v Blackpool Football Club (Properties) Limited [2017] EWHC 2767 (Ch)
In quasi-partnerships, removal of a partner without a buyout offer can be justified by serious misconduct undermining the partnership's basis.
Re Edwardian Group Limited [2018] EWHC 1715
The court has wide discretion in remedies for unfair prejudice; the usual order is a buyout, aiming for a clean break.
Bridgen v Bridgen and others [2023] EWHC 3232 (Ch)
A director has a right to inspect company accounting records.
Companies Act 2006, Section 388
Directors must exercise independent judgment and act to promote company success.
Companies Act 2006, Sections 173 and 172
Outcomes
Financial information was deliberately withheld from Mantir after January 2020, primarily by Albinder.
Albinder instructed others not to provide information without his authorization; the letter of January 29, 2020, limited information provided to Mantir.
Mantir was not wrongly excluded from management before January 2020; afterward, his exclusion was not proven.
Mantir acquiesced in Albinder's management decisions before 2020; after 2020, Mantir's actions were primarily requests for information, not demands for greater management involvement.
Mismanagement was not proven except for the KTS Issue and Albinder's actions regarding the old corrugator.
The failure to hold formal board meetings to approve accounts was not unfairly prejudicial, considering the informality of the company's operations. The case regarding the old corrugator was not substantiated.
Albinder misappropriated company assets by using company funds to build his house; the amount is assessed at £117,404.
Albinder deliberately used company funds, lied about it, and attempted to conceal the evidence.
The sale of Packaging Now was not unfairly prejudicial.
The sale was approved by a majority of the brothers. Even with a conflict of interest, the majority would have still approved the sale.
Albinder's conduct (withholding information and using company funds for the house) was unfairly prejudicial to Mantir.
These actions were serious breaches of duty, causing financial loss to the company and prejudicing Mantir's interests.
Mantir's conduct does not justify Albinder's actions.
While Mantir's actions were problematic, there was no direct connection between his conduct and Albinder's misuse of company funds or withholding of information.
Jitha must buy Mantir's shares.
Jitha's serious misconduct warrants a remedy; a buyout provides a clean break and protects the company's interests.
The value of Mantir's shares is £5,755,815, with no minority discount.
The court preferred Mr. Southall's valuation methodology; Jitha's conduct was the primary cause of the breakdown in trust and confidence, making a minority discount inappropriate; purchasing Mantir's shares gives the Respondents control of the company.