In Allnutt v The Nags Head Reading Ltd & Others  EWHC 2810 (Ch), ICC Judge Prentis reviewed the authorities on shareholders’ Unfair Prejudice as governed by the Companies Act 2006 s.994.
Ted Allnutt had been one of the directors of a company established to breathe new life into a Reading pub in 2007. His fellow shareholders voted to remove him in February 2016 because of his involvement with a local rival pub which they perceived as a conflict of interest and a breach of his director’s duties.
In April 2016, Mr Allnutt issued a claim in the Employment Tribunal alleging Unfair Dismissal and Age Discrimination. Those claims were unsuccessful, so he issued a claim in the Chancery Division seeking an order requiring the remaining shareholders to buy his shares and for compensation for the loss of his directorship.
In O'Neill v Phillips  1 WLR 1092, Lord Hoffman noted that fairness was the criterion by which the Court had to decide whether or not to grant relief, and that this should be measured against the company’s articles or what equity would regard as good faith. The Court also recalled that s.175 imposed an obligation to avoid a situation in which a director has an interest which conflicts or possibly may conflictwith the interest of the company. This required complete disclosure by a director, or the ‘informed consent’ of the company so as to acquiesce (the Duomatic principle).
Whereas the other directors had taken various hands-on roles in the pub’s management, Mr Allnutt was originally responsible for the website and for ordering wine and glasses. He held 10,000 shares, being 20% of the total (indicative of his initial capital contribution).
In 2013, Mr Allnutt’s friend and fellow shareholder Mr Oates retired from working behind the bar of the Nags Head, but continued behind the scenes. This upset Mr Allnutt, who had been considering his own retirement and was spending increasing amounts of time in Thailand.
Mr Allnutt had discussed the purchase of the nearby Butler pub with the shareholders of the Nags Head, but they all declined. So, in July 2014 Mr Allnutt and a separate business partner acquired the freehold of the Butler and invested in its refurbishment and the implementation of a new range of beers which was made possible by buying out the beer tie (as had been done at the Nags Head).
Mr Allnutt argued that there was no real conflict or that it was implicitly approved. However, at trial, the Judge found that he was and remained involved in the strategy, investment and marketing of the Butler. By contrast he had had little to do with the Nags Head since he had walked out from a rowdy football crowd there, after which he had failed to complete the New Year’s Eve order. His role in the Nags Head had therefore diminished whilst his interest in the Butler developed, while he retained his 20% shareholding and directorship in its neighbouring rival.
The Judge therefore concluded that “Mr Allnutt’s involvement in the Butler was in manifest conflict with his duties as director of the Company. That conflict was at no stage approved by his fellow directors or shareholders, or otherwise consented to, or acquiesced in”. His claim was accordingly dismissed.
Graeme Kirk / 6th Nov 2019
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