In The Matter OF EAP Securities Ltd v Adams Securities Ltd & Ors (2010)


The court considered allegations that the affairs of a company had been conducted in a manner that was unfairly prejudicial to the interests of its shareholders generally and particularly to a minority shareholder, and found that it could not be said that they were without substance or had no real prospect of success and so it was appropriate for those matters to proceed to trial.


The applicants (X) applied to strike out a petition presented by the respondents (H) which alleged that the affairs of the tenth respondent company (Y) had been conducted in a manner which was unfairly prejudicial to the interests of its members, particularly H. H was a minority shareholder in Y. The majority of the issued voting shares in Y had been held by members of one family, some of whom, including the sixth respondent, were also directors of Y. The third, fourth, fifth and sixth respondents were the personal representatives of deceased family members. The majority of the family's shareholding had been transferred to the first respondent limited company (S) which the family acquired control of. H presented the petition under the Companies Act 2006 s.994 alleging that Y had been run by, and for the benefit of, the family, thereby prejudicing the interests of other members. Regulation 11 of Y's articles of association provided that the directors could refuse to register to transfer shares to any person it was undesirable in Y's interests to admit as a member. H alleged that there was unfairness as the transfer to S meant that the family could deal with the shares without being restricted by the "undesirable" requirement in Reg.11. The transfer occurred despite a non-admission policy that Y would not admit any new shareholders, save in exceptional circumstances. Y later referred to that policy when it suggested that the shareholders might wish to consider selling their shares back to Y. H further relied on Y's directors later placing Y into run-off. X accepted that some allegations of unfair prejudice had to proceed to trial. The court had to consider whether to strike out (i) the allegations concerning the transfer to S and the non-admission policy; (ii) the allegations about the decision to place Y into run-off; (iii) the petition as against some of the respondents. X submitted that H had not suffered prejudice as, amongst other things, he did not sell his shareholding. H argued that no reasonable person would have reached the decision to go into run-off and so it could be inferred that the directors had acted in breach of their fiduciary duties.


(1) It was at least arguable that the non-admission policy was wrongful in that it was a blanket policy not directing itself to Y's best interests in each and every individual case. Each transfer ought, at least arguably, to have been considered on its own individual merits under and in accordance with Reg.11 of the articles. When that was combined with the freeing-up of the family shares by the transfer to S and the alleged utilisation of the policy in the course of offers made to the minority shareholders for the purchase of their shares it was, at the very least, arguable that the allegations concerning the policy and the transfer to S established unfair prejudice. Whether H himself suffered prejudice could not be finally determinative of the relevant issues and had to be assessed at trial. It was arguable at trial that the events complained of in relation to the policy and the transfer to S were capable of establishing, or assisting in the establishment of, unfair prejudice. Those paragraphs should therefore not be struck out (see paras 34-36 of judgment). (2) To establish unfair prejudice H had to show that the directors' decision to go into run-off was made in breach of their fiduciary duties. However, X had offered an explanation for that decision and had explained why a reasonable person could have reached it. H was complaining about the decision itself rather than the way in which that decision was being implemented. X's explanations would have to be tested at trial but it could not be said that there could not exist a credible basis for the board's strategy. It could also not be said that no reasonable person could ever have reached the decision that the board reached. The allegations concerning the run-off had to be seen in the context of allegations of unfair prejudice against minority members by the family which it was conceded or was found had to proceed to trial. It was possible that the view the trial judge formed on the allegations which were guaranteed to proceed could illuminate and inform the allegation, which at the date of the instant hearing was totally bare, that it should be inferred that the decision to implement the run-off strategy was not made bona fides. It could not be said that that allegation was without substance or had no real prospect of success (paras 41, 44-48). (3) It was only appropriate to strike out the second respondent as a respondent to the petition as it was not a proper party to the action (paras 54-57).

Application granted in part