Court of Appeal clarifies distinction between relief for company and personal claims in unfair prejudice petitions

Introduction

The Court of Appeal’s decision in the case of Giannis Ntzegkoutanis v Georgios Kimonis & Ors addresses the complex intersection between unfair prejudice petitions under Part 30 of the Companies Act 2006 and derivative claims as defined under Part 11 of the same Act. This article examines the key topics discussed, focusing on the appropriateness of seeking relief in favor of a company within an unfair prejudice petition and the statutory codification of derivative claims, which permits a company member to seek relief on the company’s behalf.

Key Facts

The dispute centers on Giannis Ntzegkoutanis (Appellant) and Georgios Kimonis (Respondent), respective shareholders of Coinomi Limited, with each holding an equal share since incorporation. The crux of the disagreement rests on the alleged exclusion of Ntzegkoutanis from the management of Coinomi Limited, purported usurpation of his director position, and the accusation that Kimonis reallocated the company’s business and assets to third parties without due authorization. This led to Ntzegkoutanis filing an unfair prejudice petition, which included claims for Kimonis to sell his shares at a depreciated value reflective of the supposed losses caused by his actions, and for third parties to account for and compensate the company for their gains from the misappropriation of assets.

Legal Principles

The legal analysis in this case pivoted around the application of two core principles:

1. Unfair Prejudice Petitions: The court acknowledged the extant power to award relief to the company on an unfair prejudice petition. However, the ruling distinguished between relief that benefits the company within the ambit of an unfair prejudice petition and derivative claims where a member acts on behalf of the company.

2. Derivative Claims: Section 260 of the 2006 Act establishes a statutory procedure for derivative claims, which allows a company member to enforce a cause of action vested in the company. Yet, the case clarified that these provisions could not be invoked within an unfair prejudice petition without express court authorization under the same Act.

The legal discourse further nuanced the conditions under which relief in favor of the company within unfair prejudice proceedings may not be considered an abuse of process. This was especially so when the petitioner sought both types of relief—the recovery for the company and a personal remedy like a share purchase order.

Outcomes

The Court of Appeal concluded that:

• The concept of a “Chime approach”, derived from Hong Kong case law and suggesting the rare and exceptional permitting of claims within unfair prejudice proceedings that could be brought as a derivative claim, was not an accurate representation of the English law.
• There was a theoretical jurisdiction to order a respondent to pay compensation to the company in unfair prejudice applications.
• It is not generally appropriate to strike out claims for compensation to be paid to the company when those claims are made alongside ones for personal relief available only in unfair prejudice proceedings.

Conclusion

The decision reaffirms the Court’s power to grant relief to a company as part of unfair prejudice proceedings but cautions against bypassing the statutory regime established for derivative claims by improperly including such claims in an unfair prejudice petition. It underscores the individual nature of the unfair prejudice remedy while simultaneously maintaining a clear procedural distinction from derivative actions. The Court clarified that when genuine personal claims under an unfair prejudice petition also include a claim for company relief, striking out the latter is usually unwarranted and could be counterproductive to judicial economy and efficiency. This nuanced approach offers a considerable degree of flexibility while protecting the integrity of both remedies.