High Court Addresses Unfair Prejudice in Emery House Property Ltd: Key Legal Principles and Remedies Explained

Citation: [2023] EWHC 3009 (Ch)
Judgment on

Introduction

The case of Nigel Freeborn & Ors v Emery House Property Limited & Anor [2023] EWHC 3009 (Ch) presents a petition under section 994 of the Companies Act 2006 concerning prejudicial conduct in the affairs of Emery House Property Ltd. This analysis dissects the case law to identify key points and elucidate the legal principles in context, offering professionals in the UK legal industry a clear understanding of the applied jurisprudence and its implications.

Key Facts

The petition alleges unfair treatment by the majority shareholder, Mr. McEleney, towards the other shareholders of Emery House Property Ltd. McEleney failed to comply with service obligations and did not attend court, leading to a one-sided determination based on evidence presented by the petitioners. Key factual disputes revolve around the unauthorized issuance of additional shares, which diluted existing shareholdings, and the refusal to register the share transfer to new leaseholders.

The court applied several legal principles rooted in the Companies Act 2006:

  1. Pre-emption rights (s.561): Shareholders have preemptive rights when new shares are allotted. McEleney’s allotment breached this right by issuing additional shares to himself without offering them to existing shareholders first.

  2. Fiduciary duties (s.171, s.172, s.175): Directors must exercise powers for the intended purpose, promote company success, and avoid conflicts of interest. The court found McEleney’s allotment of shares to himself a breach of these duties.

  3. Shareholder agreements: The email exchange between McEleney and Freeborn, confirmed as legally binding by McEleney, constituted a shareholder agreement that McEleney violated through his actions.

  4. Registration of share transfers (s.125): The company unjustifiably failing to register a share transfer prompted the court to order rectification of the register.

  5. Dalby v Bodilly [2004] EWHC 3078(Ch): This case was referenced by Ms. Ye (counsel for petitioners) to illustrate a director’s breach of fiduciary duty when allotting shares for self-interest.

Outcomes

The court rendered a decision to cancel the wrongfully issued shares, restoring the shareholding balance. Further, it mandated the registration of the share transfer to the Second and Third Petitioners, effectively resolving their grievance. The Petitioners were awarded costs against McEleney, with the draft Order detailing these remedies pending court approval.

Conclusion

In Nigel Freeborn & Ors v Emery House Property Limited & Anor, the High Court robustly applied principles enshrined in the Companies Act 2006 to address the unfair prejudicial conduct by a company director. The ruling underscores the court’s commitment to upholding shareholder rights, compliance with corporate governance norms, and the integrity of shareholder agreements. The judgment provides a clear precedent for similar disputes, reinforcing the statutory protections against the misuse of directorial powers within the framework of UK corporate law.