Unfair prejudice claim in a long-standing rags to riches family dispute has failed (Pickering v Hughes and ors)

23 Mar 2023

Dispute Resolution analysis: Following a liability trial, an unfair prejudice petition under section 994 of the Companies Act 2006 has been dismissed. None of the alleged instances of unfair prejudice directed against the Respondents was made out.

Pickering v Hughes and ors [2022] EWHC 3359 (Ch)

What are the practical implications of this case?

This is a very lengthy judgment on the first part of a split trial focused on liability in an unfair prejudice petition. It forms part of a much wider family dispute and is one of a large number of proceedings, both concluded and ongoing. On a practical level, the judgment highlights the risks of bringing wide-ranging allegations by way of an unfair prejudice petition. A number of the allegations made were supported by very limited evidence and were coherent only as part of a narrative of wider victimisation of the petitioner. The judgment also cautions against issuing proceedings under section 994 which presume the remedy which will be awarded is a share buy-out. Whilst that may be the most common order, it is only one of a number of possible orders which may be made following a successful petition. In certain companies and on certain facts, this will not be an appropriate order to make. One such circumstance is where, as here, the relevant companies have entered an insolvency process.

What was the background?

This was the judgment following a trial of an unfair prejudice petition pursuant to section 994 of the Companies Act 2006 brought by Lisa Pickering in her capacity as a shareholder of  Portbond Limited (“Portbond”). London Wiper Company Limited (“LWC”) is a wholly-owned subsidiary of Portbond. It is alleged that the conduct of LWC’s affairs formed part of the conduct of Portbond’s affairs as parent company. It is a claim which forms part of a much wider family dispute between members of the Hughes family, which has experienced something of a rags to riches story. LWC was the main trading company which traded scrap metal under the trading name, Universal Recycling Company. The affairs of Portbond and LWC were greatly intertwined, however. The allegations of unfair prejudice in these proceedings were as follows. (1) The diversion of cash from sales to their personal benefit without accounting to LWC. (2) The dismissal/removal of the petitioner. (3) The targeting of investigations into the petitioner by the auditors. (4) Causing the Company to issue proceedings against the petitioner. (5). The removal from employment of an ally of the petition. This was the first part of a split trial focused on liability. At trial, an attempt was made to introduce a number of additional complaints against the Respondents in relation to their personal lifestyles alleged to have been funded using company funds and the use of company funds to pay for hobbies such as equestrian activities. Permission was given to bring an amended claim raising complaints about the sale of the companies’ businesses in a pre-pack administration sale.

What did the court decide?

The court was not satisfied that any of the allegations of unfair prejudice were made out. There was a dearth of evidence relating to the diversion of cash sales to the personal benefit of the Respondents. This was an allegation only raised in the petition and on various previous occasions when the allegations could have been raised they were not. Investigations were launched into the petitioner not as a result of any misconduct on the part of the Respondents but due to genuine concern as to the state of a director’s loan account and the making of payments by the companies for the benefit of the petitioner. The petitioner’s dismissal flowed logically from the outcome of those investigations. There were good grounds for the petitioner’s dismissal and for the claims brought against her. They were not motivated by any improper purposes and did not constitute a breach of duty. There were similarly good grounds for the dismissal of the petitioner’s ally and that dismissal did not constitute a breach of duty or unfair prejudice. Permission was not given to the petitioner to introduce these additional complaints at trial. Even if permission had been given, the Court concluded that the allegations would not have been made out. The allegations in respect of the pre-pack administration business sale were also rejected. The pre-pack administration was controlled by the administrators and the decision to effect the pre-pack sale was also taken by the administrators.

Case details

  • Court: Business and Property Courts in Leeds, Insolvency and Companies List (ChD)
  • Judge: HHJ Davis-White KC (sitting as a High Court Judge)
  • Date of judgment: 23 December 2022

Article by Phillip Patterson – first published by LexisNexis


Phillip Patterson

Call: 2008


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