The High Court analysed a case relating to the valuation of shares in the context of unfair prejudice, including the potential application (or non-application) of minority discounts and the impact of company asset transactions on shareholder value.
Background:
Mr. Capp is the director and shareholder of Sodi-Tech EDM Ltd. Mr. Uwe Moeller is Mr. Capp’s co-shareholder. DJM Law Ltd. acted as the claimants' solicitor in the sale of a property owned by Sodi-Tech EDM Ltd to Mr. Capp and his Self-Invested Personal Pension (SIPP). The sale of the Property took place in the absence of any resolution as required by ss.190 and 195 of the Companies Act 2006.
Mr. Moeller was unaware of the sale and initiated an unfair prejudice petition. The petition was settled on terms contained in a consent order and confidential schedule dated 22 April 2021, pursuant to which Mr. Moeller's shares were purchased and his costs were paid.
The claimants instructed Mr. Pym, a forensic accountant, to provide expert share valuation evidence in connection with the petition. They brought a claim for professional negligence against the defendant.
Decision:
The High Court allowed the claimants permission to amend their response. The core of the negligence claim stems from the defendant's failure to advise Sodi-Tech on the mandatory requirements of Sections 190 and 195 of the Companies Act 2006. These sections govern transactions with directors and require shareholder approval for substantial property transactions involving directors or connected persons. The sale of the company's property to its director, Mr. Capp, and his SIPP, without the necessary shareholder resolution, constituted a clear breach of these statutory duties, which gave rise to an unfair prejudice claim.
An unfair prejudice petition is a powerful remedy for minority shareholders who believe the company's affairs are being conducted in a manner unfairly prejudicial to their interests. The threat and subsequent issuance of this petition demonstrate the serious consequences of failing to adhere to fundamental company law regarding directors’ transactions.
To resolve the unfair prejudice petition, the company was compelled to purchase Mr. Moeller's shares. The quantum of this buy-back, and whether the company paid a premium due to the procedural irregularity of the initial property sale, forms a significant part of the claimed loss.
Implications:
While most of the discussion revolves around the amendment of the application, these proceedings highlight significant company law issues arising from a professional negligence claim against solicitors. This decision highlights the importance of accurate legal advice in company property transactions and the potential for liability where solicitors fail to meet the required standard of care.
It also highlights the need to strictly adhere to the procedural requirements of the Companies Act 2006 to avoid any unfair prejudice claims and the consequences they may have on a company’s finances. When decided, this case will provide further insight into the courts' approach to quantifying losses arising from failures to comply with core company law provisions and the principles applied in the context of unfair prejudice remedies and share valuations.