Freezing injunction granted in support of an unfair prejudice petition (Kumar v Sharma and others)

Dispute Resolution analysis: A freezing injunction in support of an unfair prejudice petition in which the petitioner sought a share buy-out has been continued, albeit in a reduced sum. The decision considered the meaning of a good arguable case following the decision of the Privy Council in the Broad Idea case.

Kumar v Sharma and others [2022] EWHC 612 (Ch)

What are the practical implications of this case?

This decision has resolved conflicting authorities in favour of freezing injunctions being used in support of unfair prejudice petitions. Although these types of proceedings are not money claims in the ordinary sense, the outcome, insofar as the petitioner seeks a share buyout order, is an obligation on the part of the Respondent to pay a sum of money to the petitioner. Provided the other requirements of the grant of a freezing injunction are made out, there is no conceptual objection to the granting of a freezing injunction in support of a claim of this type. The decision also emphasises the function of a freezing injunction, following the decision of the Privy Council in Broad Idea International Ltd v Convoy Collateral Ltd [2021] UKPC 24, is to facilitate the enforcement of a judgment for the payment of money by prevent assets against which such a judgment could be enforced from being dealt with in such a way that there are insufficient assets to pay the judgment.  That function can potentially arise in relation to a broad range of claims and it would be wrong to draw firm distinctions between different types of claim.

What was the background?

The petitioner, Mr Kumar claimed to be a 50% owner of a company, Saka Maka 2 Limited (referred to as the Second Company). He brought a petition under section 994 of the Companies Act 2006 seeking an order that the other shareholder, Mr Sharma should buy out his shares. In support of this petition, Mr Kumar applied for a freezing injunction. A freezing injunction was granted at a without notice hearing by Michael Green J. It was then extended by Fancourt J in order to provide Mr Sharma with an opportunity to file evidence in response. At the return date, Mr Sharma argued: (1) Mr Kumar does not have a good arguable case. (2) There is not a real risk of a future judgment going unsatisfied through unjustified dissipation of assets. (3) There had been a failure to give full and frank disclosure. (4) It would not be just and convenient to grant a freezing injunction in favour of Mr Kumar. (5) Alternatively, the maximum sum frozen should be £10,000 and not £60,000. (6) The freezing order should not extend to a joint account used by Mr and Mrs Sharma.

What did the court decide?

Conflicting authorities were considered on the question of whether it was conceptually appropriate for a freezing injunction to be granted in support of an unfair prejudice petition. The Court followed the decision in Palmer v Lovelight and concluded that, although such a petition does not seek a money judgment, per se, it does seek a buyout which requires the Respondent to pay a sum of money to the petitioner. Referring further to the decision of the Privy Council in Broad Idea International Ltd v Convoy Collateral Ltd [2021] UKPC 24, the purpose of the freezing injunction jurisdiction is to facilitate the enforcement of a judgment for the payment of money by prevent assets against which such a judgment could be enforced from being dealt with in such a way that there are insufficient assets to pay the judgment. The Court should be slow to draw distinctions between different types of claim. In relation to Mr Kumar’s standing, the company did not keep a register of members and attempts to alter the shareholdings within the company were intended to be effected by way of the submission of Completion Statements to the Registrar of Companies. The Court concluded overall, however, that there was a good arguable case that the unfair prejudice petition would succeed and a share buyout would be ordered. The Court commented that the case did not sail high over the bar and there were hotly contested areas of factual dispute between the parties. Although the Court found some breaches of the duty of fair presentation when the freezing injunction had been obtained without notice, the breaches were not sufficient to justify refusing to continue the freezing injunction. The Court was satisfied that there was a real risk that a judgment would go unsatisfied as a result of unauthorised dissipation of assets by Mr Sharma. Having considered the valuation evidence concerning Mr Kumar’s shareholding, the Court considered that the maximum sum covered by the freezing injunction should be reduced to £35,000. This was based on preserving the sum of £25,000 to meet a potential buyout order and a sum of £10,000 in respect of the costs of the petition.

Case details

• Court: High Court, Business and Property Courts, Insolvency and Companies List
• Judge: Jonathan Hilliard QC (sitting as a Deputy High Court Judge)
• Date of judgment: 18 March 2022

Article by Phillip Patterson – first published by LexisNexis