The High Court has ordered Charles Kelly Limited to buy William Kelly’s 3,968 shares at fair market value after finding that his exercise of director’s powers oppressed his brother, Edward Gerard Kelly.
In a judgment delivered on 31 August 2011, Miss Justice Laffoy said the brothers’ business and personal relationship had broken down irretrievably. The company operated a builders’ merchant and hardware business in Letterkenny, County Donegal, and also held a property portfolio.
The court had already found that William Kelly’s conduct met the legal test for oppression. It cited his purported suspension of Edward Kelly in April 2008, difficulties in managing the company jointly, and unauthorised payments from company funds towards legal fees. The judge said Edward Kelly had also behaved inappropriately and shared responsibility for the breakdown, but William Kelly bore most responsibility.
The court’s earlier finding followed a separate first stage that established the brothers jointly owned 7,936 of the company’s 7,938 issued shares. The remaining two belonged to their late mother’s estate; the judgment said her will had not been admitted to probate.
The judge said the court lacked reliable financial evidence to settle the remedy at the earlier stage, so it ordered updated accounts, a financial report and property valuations. An accountant’s report later put the company’s net assets at about €3.43 million as of 30 December 2010, subject to stated limitations, and described urgent financial difficulties. It estimated trading losses of €733,930 in 2010 and forecast losses of €850,000 for 2011.
Laffoy said the company’s survival required William Kelly to cease being both a shareholder and director. As neither brother could afford to buy the other’s shares personally, she concluded the company should buy William Kelly’s shares, with a corresponding reduction in share capital. The court ordered the jointly held shares divided equally between the brothers and ordered William Kelly to resign as a director, allowing Edward Kelly to appoint a replacement.
The purchase price remains to be determined. Subject to its agreement, Deloitte & Touche was appointed to value the shares as at 31 August 2011, with the company paying its fee; the final valuation and price remain for the court to decide. Any amount of the €180,000 in legal fees that William Kelly had not repaid was to be set off against the price. The court adjourned the case to 7 October 2011 to review progress.