In the Matter of TPD Investments Ltd Sub Nom Destiny Investments (1993) Ltd v TH Holdings Ltd (2017)
The court determined the appropriate remedy in a case of unfair prejudice within the meaning of the Companies Act 2006 s.994. It considered the fair value of the petitioners' shares in the company concerned, whether the percentage of shares attributable to them should be increased, and whether any personal liability should attach to the directors of the respondent company and the company concerned.
The petitioners brought an unfair prejudice petition under the Companies Act 2006 s.994 in relation to the second respondent company.
The petitioners and the first respondent (Tonstate) were joint venturers who owned the company in proportions established by a memorandum of understanding. The company had been set up as a special purpose vehicle to acquire and manage two hotels (The Metropole hotels), and it had subsequently acquired a third (the Cardiff Hilton). It was financed by loans from a bank, the petitioners and Tonstate. The parties agreed that the first memorandum would apply to the Cardiff Hilton acquisition, and a second memorandum dealt with the structure of the finance for the Metropole hotels. The petitioners alleged unfairly prejudicial conduct on the part of Tonstate and its directors (the third to sixth defendants). They claimed that they had breached their fiduciary duties to the company by removing the Cardiff Hilton from its control, renegotiating its borrowing and diluting the petitioners' shareholding. They sought an order that their shareholder loans be repaid with interest and their shares be bought at a fair value. The respondents made a number of admissions and conceded that Tonstate should buy the petitioners' shares at a fair value. The trial was largely concerned with the appropriate remedy.
The issues were (1) the impact of private borrowing by Tonstate secured on the Metropole hotels ("loan D"); (2) whether the percentage of shares attributable to the petitioners should be increased because of loan D and the conceded unfair prejudice; (3) the fair value of the shares; (4) the appropriate form of the share purchase order; (5) whether the third and fourth respondents were so closely connected with the unfairly prejudicial conduct that they should be personally liable.
(1) The effect of "loan D" - The way in which loan D and the security in relation to it had been dealt with did not breach the terms of the memoranda, was not otherwise unconscionable or inequitable, and involved no breach of fiduciary duty. No unfair prejudice arose. By the time the petitioners signed the second memorandum, they were fully aware of loan D, and there was no question of Tonstate having concealed it. Something could only be concealed if there was an obligation to reveal it, and Tonstate had not been obliged to reveal the existence of loan D to the petitioners. The project had been put to them as a package in an arm's length negotiation; Tonstate had conducted all the negotiations for the loan facilities and the petitioners had carried out little or no due diligence. The figures in the first memorandum were not precisely stated and did not amount to pre-contractual representations and, in any event, the petitioners did not suggest that they had suffered any loss or prejudice (see paras 69-77, 85-93).
(2) Increase in the percentage of shares attributable to the petitioners - The remedies available to the court under s.996 were flexible and could be fashioned so as to put right, and cure for the future, any unfair prejudice suffered. However, even if there had been unfair prejudice in relation to loan D, it would not have been right to treat the petitioners as if they had had a greater percentage interest in the company. To do so would be contrary to the original bargain and the terms of the second memorandum, would lead to a considerable transfer of value to the petitioners, and would allow them to take an opportunistic advantage. The position was the same in respect of the Cardiff Hilton (91- 103 of judgment).
(3) Fair Value - The experts had adopted differing definitions of "fair value". Tonstate's applied the "International Financial Reporting Standard 13: Fair Value Measurement", while the petitioners' applied the "IVSC" standard. The court analysed their difference of approach in relation to each item in the calculation of the appropriate net asset value for the company. Its conclusions were to be applied to the framework agreed by the experts once they had seen the audited accounts (paras 104, 111, 141).
(3) The terms of the share purchase order - Tonstate and the company would be given time to purchase the petitioners' shares and repay the balance of the shareholder loans. That was consistent with the parties' original expectations: it was always intended that the underlying assets would be sold in order to realise the parties' investments. The petitioners should not profit from the unfair prejudice beyond the ambit of the original project (paras 146-147).
(5) Liability of the third and fourth respondents - Cases about personal liability in relation to unfair prejudice were highly fact-sensitive: the individual had to be so closely connected to the unfairly prejudicial conduct that it would be just to grant a remedy against him, F&C Alternative Investments (Holdings) Ltd v Barthelemy  EWHC 1731 (Ch) applied. There were insufficient factors to make it just to impose personal liability on the third and fourth respondents. Neither had breached their fiduciary duties in relation to loan D and, although they conceded unfair prejudice in relation to the transfer of the Cardiff Hilton, the refinancing and the dilution of the petitioners' shareholding, the court could not gainsay their assertions that they had acted in good faith. A mere connection with the acts complained of was insufficient, as was involvement in a decision as a member of a company's board of directors (paras 158-162).
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