An unfair prejudice petition provides an avenue for members to seek relief when they believe their interests are unfairly prejudiced by the company’s actions. Whether directors are entitled to cover under a D&O policy for their defence costs in defending such petitions always depends on a number of factors, including the policy wording, the nature of the allegations and the capacity in which they are sued. Coverage issues sometimes arise, including where the petitioner and respondent are each directors or shadow directors, or where the petitioner seeks compensation for a company in addition to personal relief, bypassing a derivative action (as in Ntzegkoutanis v Kimionis).
These issues were recently brought to light in the case of Simpson v Diamandis, Woollett & ors [2024] EWHC 850 (Ch) where the Respondents (one of whom was a director) were ordered to pay the Petitioner the value of his shareholding (approx. £2.9m).
The decision
The Court’s judgment in Simpson was handed down on 15 April 2024. It concerns the transfer of Tilon CG Limited (TCGL) from its holding company Artemas Joseph Holdings Limited (AJHL) into a new holding company, Tildon Holdings Limited (THL) in November 2021 (the Transfer).
Simpson (the Petitioner) claimed that the Transfer was made at a gross undervalue, depriving him of his interest in AJHL. He also alleged that Diamandis kept him out of the loop and ambushed him with a shareholder resolution, which was passed by Diamandis and one other in order to effect the Transfer.
Simpson claimed that the Transfer ‘unfairly prejudiced’ him within the meaning of s994 of the Companies Act 2006. He also claimed that the Transfer was in breach of the duties that Diamandis owed AJHL and in breach of the relationship of the quasi partnership in AJHL between himself and Diamandis.
The claims against Woollett and the other Respondents were brought on the basis that all were complicit in the scheme and should be fixed with liability.
Simpson sought relief pursuant to s 996 of the Companies Act in the form of a buy out of his shares.
Only Diamandis and Woollett defended the claim at the substantive trial in November 2023.
In reaching her decision Her Honour Shea KC considered, amongst other things:
- was the Transfer made at an undervalue?
- was the Transfer at the price of £150,000 unfairly prejudicial to Simpson?
- should a buyout order be made against Diamandis and Woollett?
Her Honour accepted the method and value of TCGL given by Simpson’s expert: £2.9m in November 2021. It followed that the sale of TCGL for £150,000 was at a substantial undervalue.
Her Honour also decided that the Transfer was prejudicial and unfair to Simpson and remarked that, ‘It is hard to conceive of a clearer example of the economic value of the petitioner’s shareholding being seriously diminished by reason of the conduct on the part of the person with de facto control of the company, namely, Mr Diamandis’.
Her Honour also accepted that Mr Diamandis’s actions breached the fiduciary and statutory duties he owed as a director of AJHL, for example his duties to exercise reasonable care skill and diligence, to promote success of AJHL and to avoid a conflict of interest.
Her Honour decided that an order should be made requiring Diamandis to buyout Simpson’s shares in TCGL and that in view of Woollett’s knowledge of what was planned, and his collusion or acquiescence in it, Woollett was sufficiently implicated to also be fixed with liability.
Accordingly, Her Honour ordered that Diamandis and Woollett pay Simpson the value of his shareholding in TCGL based on the value of TCGL of £2.9m and subject to allowance for the dilution following the inward investment.
