The High Court has refused an application by a company to be removed from a shareholder oppression case, leaving it joined to proceedings brought by a woman who alleges that business assets and trade were shifted from a company she co-owned to the joined company.
Mr Justice Max Barrett delivered the judgment on 5 October 2020. The application concerned an ex parte order made on 13 May 2019 joining DEF Limited as a co-respondent to proceedings under section 212 of the Companies Act 2014. The court anonymised all parties to protect their private lives in light of related family proceedings being heard in camera. The company names used in the judgment are anonymised and do not identify actual companies.
The applicant, Ms X, and her estranged husband, Mr Y, each held 50% of ABC Limited and were its directors. Ms X alleges that Mr Y and Ms Z arranged for ABC’s trade, turnover and assets to pass to DEF, diminishing the value of her shareholding. She contends that DEF is not a genuine separate enterprise but a vehicle through which Mr Y acted. Those allegations are disputed.
DEF, whose sole shareholder and director is Ms Z, sought to have the joinder order set aside, to be discharged as a party, or to have the case against it struck out. It argued that any claim for loss to ABC belonged to ABC, that Ms X could not recover reflective loss as a shareholder, and that DEF could not itself be guilty of oppression under section 212. Ms Z’s affidavit described the asset acquisition as a commercial transaction and denied that it was a sham. The parties’ forensic accountants disagreed about the transaction and ABC’s financial records.
The court held that section 212 does not rule out orders affecting third-party transactions and that a third party may need to be joined where its presence is necessary to resolve the issues effectively and completely. It also considered whether the claim against DEF was bound to fail at this early stage. The judge said DEF had not established that ABC could recover the entire loss alleged, or that such a claim was available to ABC on the facts. The underlying claims remain contested; the court did not decide whether oppression, fraud or a sham transaction occurred.
The relief sought by DEF was refused. It therefore remained a co-respondent at this stage. The court invited the parties to make submissions by email about the costs order to follow; it did not determine costs in this judgment.