The High Court addressed a petition for unfair prejudice under Section 994 of the Companies Act 2006.
Facts:
Bubbles Champagne Bar Ltd., incorporated in April 2016 with an initial share capital of 100 shares at £1, operates bars on the Cains Brewery site in Liverpool. Until late 2018, it ran a single bar, ‘The Black Pearl’. From late 2018, the company operated three bars, namely ‘The Black Pearl,’ ‘Hippie Chic,’ and the ‘Yellow Sub’. ‘The Black Pearl’ ceased trading in June 2022 on termination of its tenancy. ‘Yellow Sub’ continues to operate from a converted barge, while ‘Hippie Chic’ operates from semi-permanent Bedouin-style tents. The company’s articles are amended model articles and contain no relevant exit provisions. Upon incorporation, Mr. McCaughran was both the sole director and sole shareholder.
However, Mr. Borg-Olivier claimed that he was a founding partner of the business and was beneficially entitled to a third of the company’s shares. He alleged that the affairs of the company were being conducted in a way that unfairly prejudiced his interests, specifically following the formal transfer of shares to a third-party corporate respondent, Sullstan Beverages Ltd., incorporated in April 2022.
The central dispute revolved around the legal standing of the petitioner. Under Section 994 of the Companies Act 2006, only a registered “member” of a company can present an unfair prejudice petition, and Mr. Borg-Olivier was never formally registered as a shareholder. To overcome this, he relied on two primary documents, specifically a 2012 ‘Declaration of Trust’ concerning a previous boat-hiring business and a 2019 “Partnership Agreement” which he had drafted himself. The 2019 document stated that he and the two main respondents held “equal shares” in the company.
The respondents, Mr. McCaughran and Mr. Stockton, denied that any such partnership or shareholding agreement ever existed, characterising Mr. Borg-Olivier as an investor, rather than as a partner or owner, who provided capital to get the business off the ground without acquiring a proprietary interest in the company itself.
Decision:
The High Court dismissed the petition on the grounds that Mr. Borg-Olivier was not a shareholder and had no right to be registered as one, meaning that he lacked the necessary standing to bring a claim under Section 994. The Court reaffirmed that a mere financial investment, especially in an informal business setting, does not automatically entitle a person to equitable relief or ownership rights without a clearly established mutual understanding or contract.
Under Section 994(1) of the Companies Act 2006, a petition can only be brought by a “member” of the company. Although the petitioner provided significant funds (£100,000), this was characteristic of an investor or creditor relationship rather than an equity holding. Indeed, there was no evidence that this money was exchanged specifically for shares.
Regarding the 2019 document, the Judge reasoned that the document did not actually transfer shares; it merely purported to “acknowledge” a pre-existing state of affairs. Since the Court found that no such prior agreement existed, the 2019 document could not validate a non-existent right.
Implications:
The case reinforces that, while the Court has the discretion to rectify a company’s register, it will not do so lightly. The judgement highlights a critical distinction, specifically that providing capital, even substantial sums, cannot be conflated with acquiring equity. In the absence of formal share certificates or a clear contract, the Court is likely to categorise a funder as a creditor or an investor rather than a beneficial owner. Without being a “member,” the door to Section 994 relief remains firmly shut.
Documents that merely “acknowledge” a pre-existing state of affairs (e.g., the 2019 agreement) are much weaker than “dispositive” documents that actually transfer rights.
