Joining The Company: When Should A Company Be Joined To A Shareholder Dispute?

• Published date: 28 June 2022
• Subject Matter: Corporate/Commercial Law, Corporate and Company Law, Shareholders
• Law Firm: Gatehouse Chambers
• Author: Ms Emily Betts and Amy Held

King & Ors v Kings Solutions Group Ltd & Ors [2022] EWHC 1099 (Ch)

Background

This appeal arose in the context of long-running and complex dispute between the shareholders of Kings Solutions Group Limited ('the Company').

A petition under section 994 of the Companies Act 2006 was presented in March 2018. That petition did not name Kings Security Systems Limited ('KSSL'), a subsidiary of the Company, as a Respondent. However, in August 2018, the legal representatives of the Petitioners requested that the named Respondents consent to KSSL being joined, because it was "sufficiently connected" to the unfair prejudice which the Petitioners claimed to have suffered to justify it being held jointly and severally liable to purchase the Petitioners' shares.

In December 2018, both the Company and KSSL were joined by consent on the basis that (i) joinder was necessary in order to for either be bound by any decision of the Court and/or give appropriate disclosure; but (ii) both the Company and KSSL would take a neutral position in the dispute. In response, it was confirmed that the Petition would be duly amended, though this never occurred.

In January 2019, Points of Claim were served and a consent order for directions was approved by ICC Judge Prentis, both of which named KSSL as the 6^th Respondent. The Respondents, save for the Company and KSSL, were further ordered to file and serve Point of Defence by 22 March 2019. Proceedings continued with KSSL named as the 6^th Respondent in court documents.

In June 2019, a letter was sent on behalf of the Petitioners, stating that, as KSSL had not filed Points of Defence, the Petitioners were entitled to summary judgment against KSSL. This was disputed, and in December 2019, the Petitioners issued an Application Notice, seeking an order that, unless KSSL files Points of Defence within 28 days of the application being heard, it should be debarred from defending the Petition.

The Decision

Leech J dismissed the application as misconceived. Although Leech J considered the matter could be disposed of on the simple basis that KSSL had never been ordered to serve Points of Defence, Leech J also noted that it would not be appropriate to vary the order of ICC Judge Prentis in any event.

By reference to the authorities, Leech J began with the well-established principle that a company's funds should not be spent on disputes between shareholders (as stated in, for example, Re Crossmore Electrical and Civil Engineering Ltd (1989) 5 BCC 37...