Court Of Appeal Refuses To Strike Out Unfair Prejudice Petition Seeking Relief In Favour Of The Company

• Published date: 18 January 2024
• Subject Matter: Litigation, Mediation & Arbitration, Arbitration & Dispute Resolution
• Law Firm: Herbert Smith Freehills
• Author: Mr Neil Blake and Richard Mendoza

The Court of Appeal has clarified that a shareholder bringing an unfair prejudice petition can seek relief in favour of the company in addition to personal relief: Ntzegkoutanis v Kimionis [2023] EWCA Civ 1480.

However, at least generally, such relief will not be granted unless it corresponds with relief to which the company would have been entitled in an action brought by or on behalf of the company (including a derivative action). Moreover, an unfair prejudice petition may be struck out as an abuse of process if the petitioner claims only relief in favour of the company, or is not genuinely interested in obtaining personal relief but is merely attempting to bypass the restrictions on bringing a derivative action. Otherwise, it will not generally be appropriate to strike out a petition which seeks both forms of relief.

The Court of Appeal's decision confirms that, in certain circumstances, aggrieved shareholders may be able to achieve remedies in favour of their company without first having to overcome the stringent requirements of the derivative action regime.

However, would-be petitioners will need to consider carefully the framing of their case. In particular, they will likely need to seek personal relief as a primary basis, and avoid giving any impression that pursuing a remedy for the benefit of the company via section 994 is an improper attempt to achieve company redress via the back door.

Background

Mr Ntzegkoutanis and Mr Kimionis set up Coinomi Limited ("Coinomi") to develop and market a cryptocurrency wallet app. The two were Coinomi's sole shareholders and also directors of the company (although there was a dispute as to whether Mr Ntzegkoutanis remained a director).

Mr Ntzegkoutanis said that, over time, he had been excluded from the management of Coinomi by Mr Kimionis and further that Mr Kimionis had misappropriated the company's business and assets. On this basis, Mr Ntzegkoutanis issued an unfair prejudice petition pursuant to section 994 of the Companies Act 2006 ("CA 2006").

The petition sought: (1) an order for Mr Kimionis to sell his shares to Mr Ntzegkoutanis; (2) an order that Mr Kimionis compensate Coinomi for losses caused by his conduct; and (3) declarations that misappropriated assets were held on constructive trust for Coinomi.

Mr Kimionis applied to strike out (2) and (3) above as an abuse of process. He argued that since these heads of claim sought relief on behalf of the company (and in respect of causes of action properly...