Harding & Anor v Edwards & Ors

The Petitioners are sisters and shareholders in the company Brand & Harding Ltd, the Fourth Respondent (‘the Company’). They bring this petition seeking an order winding up the Company on the grounds set out in section 122(1)(g) of the Insolvency Act 1986, namely that it is just and equitable that the Company should be wound up. The First Respondent, Mrs Edwards, is the older sister of the Petitioners and the Second Respondent, Mrs Janet Harding, is their mother. The Third Respondent is a trust set up under the will of Mr Bryan Harding, the father of the three sisters and late husband of Mrs Janet Harding. The trustees of the trust are Mrs Janet Harding, Mr Esmond Edwards (the husband of Mrs Edwards) and a solicitor Mr W A Wyers. Mrs Janet Harding suffers from dementia and Parkinson’s Disease and there is a Deputy appointed by the Court of Protection, Mr Kambli, to look after her interests. He has also been appointed as her litigation friend for the purposes of these proceedings but has played no part in the action. Only Mrs Edwards, therefore, has actively opposed the winding up of the Company.

The Petitioners’ case is that the sisters cannot agree on the management of the Company. Their dealings with each other over recent years have been marked by accusations and counter-accusations of misconduct descending into bitter acrimony. They cannot seem to pull themselves out of the mess into which the Company’s affairs have fallen or agree any matters relating to the future governance of the Company. The only way forward, they say, is for the Company to be wound up and the business sold. Mrs Edwards’ case is broadly that the Petitioners have shown little interest in helping to run the Company’s affairs. The Company is profitable and successful and she is able and willing to continue to run it for the benefit of all the parties if the Petitioners would leave her alone to do so. All three sisters, as well as Mr Edwards gave evidence at the trial before me.

The business of the Company is a farm comprising 242 acres of arable land in Cambridgeshire. For many years the day to day farming of the land has been carried on by Robert Stacey who worked alongside Bryan Harding and now farms the land under a contract arrangement with the Company. The Company was set up by Bryan Harding and Mr Brand, Janet Harding’s father. It was incorporated on 15 September 1955.

In about September 2001, Bryan Harding was diagnosed with lung cancer. By that time the cancer was already very advanced and it was clear that he had only a few months left to live. He asked Sally Harding to come into the business with him to learn how he managed it and how he did the accounts so that she could continue after his death. Sally Harding had been involved in helping her father with the farm in the early 1980s. Mr Harding died on 24 December 2001 aged 73. Under his will, dated 3 December 2001:

After Mr Harding’s death, Sally Harding continued to work as a book keeper and administrator for the Company in return for a small monthly payment. There is a dispute between the parties as to how efficiently she carried out this work and why it was that she stopped doing it in June 2002. I do not need to resolve that dispute for the purposes of these proceedings other than to say that I accept that this must have been a very difficult and painful time for the whole family with Mr Harding’s death occurring so suddenly and such tragic circumstances. If there were any failings on Sally Harding’s part in dealing with the administration of the farm I am sure they were the result of the grief and turmoil that the family was suffering rather than incompetence or lack of interest.

Janet Harding decided that all the daughters should be appointed to be directors of the Company since Mr Harding’s death left her as the sole director. The three daughters were appointed directors in April 2002. They had all been shareholders of the Company since 1996.

There is no dispute between the parties as to the test that I must apply. This is the test set out in the speech of Lord Wilberforce in Ebrahimi v Westbourne Galleries [1973] AC 360. He said:

“It would be impossible, and wholly undesirable, to define the circumstances in which these considerations may arise. Certainly the fact that a company is a small one, or a private company, is not enough. There are very many of these where the association is a purely commercial one, of which it can safely be said that the basis of association is adequately and exhaustively laid down in the articles. The superimposition of equitable considerations requires something more, which typically may include one, or probably more, of the following elements: (i) an association formed or continued on the basis of a personal relationship, involving mutual confidence – this element will often be found where a pre-existing partnership has been converted into a limited company; (ii) an agreement, or understanding, that all, or some (for there may be “sleeping” members), of the shareholders shall participate in the conduct of the business; (iii) restriction upon the transfer of the members’ interest in the company – so that if confidence is lost, or one member is removed from management, he cannot take out his stake and go elsewhere.”

Lord Wilberforce went on to say that to refer to such companies as ‘quasi-partnerships’ or ‘in substance partnerships’ may be convenient because it brings into consideration the concepts of probity, good faith and mutual confidence that have been developed in partnership law. However, those labels may be confusing if they imply that the company involved is something other than a separate corporate entity in which the individuals involved have particular rights and responsibilities.

Mr Couser, appearing for the Petitioners, helpfully expressed the test emerging from Ebrahimi and the other cases to which he referred me in five steps:

This element of the test is clearly satisfied here. The shares have always been held by members of the Harding family and the farm was, during Mr Harding’s lifetime at least, the family business. The sisters all have other employment so they are not dependent on the income of the farm for their livelihood. However, it was the intention of the whole family both when the Company was set up and in the aftermath of Bryan Harding’s death that it would be run by the shareholders, albeit that the day to day farming would continue to be organised by Mr Stacey. That is why the sisters were given shares in the Company in 1996 and why all three sisters were appointed directors of the Company in 2002 at their mother’s request. It was Mr Harding’s hope, as expressed in his will, and the intention of all the parties at the time of his death that the sisters and their mother would run the Company together.

This element of the test is not contested by Mrs Edwards; her solicitors wrote to Sally Harding in April 2012, following Janet Harding’s resignation as a director, describing the business as ‘essentially a quasi-partnership for the operation of the family business’ and suggesting that an additional director be appointed to ensure that Janet Harding’s wishes were represented at board meetings.

Despite the disagreements among the sisters that I describe later, the Company has been run as a quasi-partnership in that no third party outside the family has been involved in managing the Company and the sisters have all considered it their entitlement as well as their responsibility to be involved in the Company’s affairs.

Mrs Edwards’ evidence was that her sisters have shown little interest in the running of the Company since Sally Harding stopped her work as book keeper/administrator in June 2002. The Petitioners for their part insist that they have tried to be actively involved in decisions about the Company’s affairs and have attended such shareholder meetings and board meetings that have been held. They say that they wanted to be more involved but have been prevented from participating in decision making by Mrs Edwards because she has refused them access to the Company’s records, failed to inform them about the dates of meetings and not consulted them about issues that have arisen. Although Mrs Walton lived in London in 2002, she came up to the farm for meetings and at weekends to support her mother and in 2004 she moved back to Ramsey and lived with her mother for a time whilst her own house was being built there.

On this point I accept the evidence of the Petitioners that they have been involved since 2002 in the management of the Company to the extent that can be reasonably expected of them, having regard to the way the Company is run. It is certainly the case that Mrs Edwards has, since June 2002, been more directly involved in day to day administration of the Company office. She has been paid a small monthly salary in order to undertake this book keeping role. It is also true, as Mrs Edwards accepts, that there is not a great deal of work to be done in managing the farm. The farming work is carried out by or under the direction of Mr Stacey and appears to run from season to season without great variation. Mrs Edwards’ evidence is that her book keeping/administrator role occupies only about three or four hours a week and she fits this in around her demanding job as a radiographer at the local hospital’s oncology unit. I must assess the scale of the Petitioners’ involvement in the management of the Company in the light of these facts. In referring to the management of the Company here, I am referring to the Petitioners’ involvement in taking the kinds of decisions that are normally taken by the directors and shareholders of a company, rather than the day to day administration that is usually carried out by employees.

There are sets of minutes of the annual general meeting of the shareholders of the Company and the meetings of the board of directors. These meetings may have been infrequent but the minutes note on occasion that the Petitioners were pressing for more meetings to be held. There is nothing to suggest that the meetings were inadequate to provide a forum for discussing everything that needed to be discussed. At the meetings for which I have seen minutes, the sisters were all involved in considering the kinds of issues that one would expect to arise in a Company of this kind:

In the light of this evidence I find that the Company was in fact run as a quasi-partnership with the Petitioners taking part in the management of the Company so far as they were able. I therefore find that this element of the test is satisfied.

The main area of dispute between the parties is whether the Company is deadlocked; whether mutual trust and confidence among the quasi-partners has broken down and whether the Company is being improperly managed. Mr Couser referred me to two leading cases on the just and equitable winding up jurisdiction. In Re Yenidje Tobacco Co Ltd [1916] 2 Ch 426 concerned a company set up by two tobacco manufacturers, Mr Rothman and Mr Weinberg. Lord Cozens-Hardy MR referred to the grounds for winding up a partnership set out in Lord Lindley’s textbook on Partnership as including ‘Refusal to meet on matters of business, continued quarrelling, and such a state of animosity as precludes all reasonable hope of reconciliation and friendly cooperation’. The Court of Appeal held that it was not necessary to show gross misconduct as a partner but only that the court must be satisfied that it is impossible for the partners to place that confidence in each other which each has a right to expect and that such impossibility has not been caused by the person seeking to take advantage of it: see page 430 of the report. Lord Cozens-Hardy held that the relationship between Mr Rothman and Mr Weinberg had broken down to the extent that the two shareholders were not on speaking terms and that no business which deserved the name of business in the affairs of the company could be carried on. He therefore held that the company was not in a state that could have been contemplated at the time when the company had been formed and that it should be terminated as soon as possible. The court made the winding up order even though the company was prosperous and making large profits.

The second case is Ebrahimi v Westbourne Galleries to which I have already referred. In that case Lord Wilberforce in the leading speech reviewed the earlier authorities and then set out the justification for the court’s jurisdiction:

“My Lords, in my opinion these authorities represent a sound and rational development of the law which should be endorsed. The foundation of it all lies in the words “just and equitable” and, if there is any respect in which some of the cases may be open to criticism, it is that the courts may sometimes have been too timorous in giving them full force. The words are a recognition of the fact that a limited company is more than a mere legal entity, with a personality in law of its own: that there is room in company law for recognition of the fact that behind it, or amongst it, there are individuals, with rights, expectations and obligations inter se which are not necessarily submerged in the company structure. That structure is defined by the Companies Act and by the articles of association by which shareholders agree to be bound. In most companies and in most contexts, this definition is sufficient and exhaustive, equally so whether the company is large or small. The “just and equitable” provision does not, as the respondents suggest, entitle one party to disregard the obligation he assumes by entering a company, nor the court to dispense him from it. It does, as equity always does, enable the court to subject the exercise of legal rights to equitable considerations; considerations, that is, of a personal character arising between one individual and another, which may make it unjust, or inequitable, to insist on legal rights, or to exercise them in a particular way.”

I note here two further points arising from Ebrahimi. First, Ebrahimi was an ‘expulsion’ case, that is a case where one group of shareholder/directors had validly removed Mr Ebrahimi from his position as a director of the company. Lord Wilberforce held that the just and equitable test did not turn on whether it had been shown that the expulsion of Mr Ebrahimi was or was not in the best interests of the company. Even if the majority shareholder Mr Nazar had genuinely persuaded himself that the company would be better off without Mr Ebrahimi, if Mr Ebrahimi disputed that or thought the same about Mr Nazar, what prevailed was simply the majority view. That did not preclude the court finding that it was just and equitable to wind the company up.

The second point to note is the comment of Lord Cross of Chelsea at page 387 where he said:

“A petitioner who relies on the ‘just and equitable’ clause must come to court with clean hands, and if the breakdown in confidence between him and the other parties to the dispute appears to be due to his misconduct, he cannot insist on the company being wound up if they wish it to continue”

Lord Cross made that statement when considering an earlier case where the petitioner had been found by the court to have been stealing the company’s money. I do not consider that the obligation to come with clean hands means that a petitioner must be able to show that he or she is entirely blameless for the problems that have overtaken the company. Petitions for winding up on just and equitable grounds usually represent the culmination of a long period of argument and disruption from which it is rare for any one party to emerge as having behaved with exemplary politeness and reasonableness throughout. To set such a high standard would, in my judgment, ignore the very realities of human relationships which Lord Wilberforce regarded as the foundation of the jurisdiction. The evidence in this case satisfies me that the Petitioners’ hands are sufficiently clean to invoke the court’s jurisdiction.

I now turn to the evidence on which the Petitioners rely as showing that there Company is deadlocked, that it has been improperly managed and that mutual confidence has broken down. There were many criticisms made by them of the way that Mrs Edwards, supported by Mr Edwards, has behaved towards them. I have focused on four aspects which, in my judgment, amply demonstrate that the court has jurisdiction to wind up the Company. Those aspects are (i) the dispute between the parties over who should act as the Company’s accountant; (ii) the dispute over access to the Company records at the registered office; (iii) the attempts by Mrs Edwards to remove the Petitioners as directors and appoint Mr Edwards to be a director despite the Petitioners’ firm opposition to his appointment and (iv) the deadlock that arises because of the current and likely future distribution of the shareholdings.

The dispute over the appointment of the Company’s accountants

The Petitioners’ evidence and the minutes of the meetings I have already referred to show an increasing concern over the potential for conflict between the different roles that Mr Edwards was fulfilling as a result of his involvement in the affairs of the Company. Mr Edwards was not a shareholder in his own right but was one of the three trustees of the trust set up under Bryan Harding’s will (the other trustees being Janet Harding and William Wyers). Mr Edwards was also not a director of the Company, though I describe later the attempts that he and Mrs Edwards have made recently to appoint him as such. After Mr Harding’s death, the farm went through several very difficult years, reflecting problems in the agricultural sector generally. The directors decided that to save money, Mr Edwards would do the work done by the current accountants since that would reduce the fees charged to the Company for the work. Sally Harding’s evidence was that it was not entirely clear at the time whether Mr Edwards undertook this work in some personal capacity or whether it was his firm which was formally engaged. In 2007 Sally Harding started to express concern at the prominent role that Mr Edwards seemed to be taking at Company meetings and raised the issue of the appropriateness of him being a trustee of the trust (of which Sally and Mrs Walton were remaindermen) and being a staunch supporter of Mrs Edwards’ views on the management of the Company and being involved in the preparation of the Company’s accounts.

The minutes of the AGM held on 23 November 2007 attended by all three daughters, Mrs Janet Harding and Mr Edwards record that Sally Harding raised the fact that ‘she feels Esmond has a conflict of interest, meetings should happen sooner and the accounts are too expensive and the way of paying we have been doing doesn’t have to carry on in that way now”. Sally asked to see a copy of the terms of engagement of Mr Edwards. At the meeting of 31 January 2009 the first ‘matter arising’ noted in the minutes was that Sally Harding had still not been supplied with Mr Edwards’ terms of engagement. It is recorded that Sally Harding said that she is still not happy with Mr Edwards doing the farm accounts as she feels there is a conflict of interest and that he is too expensive. She said she would like to put forward ‘an unbiased Accountant’.

At the AGM on 31 October 2009, Sally Harding was complaining that she had still not received the terms of engagement and that the accountancy issue was still to be addressed. This was repeated in the minutes of the next AGM in October 2010 which state:

“The accountancy issue is still to be addressed. ALL

We discussed this issue which is regarding the impartiality of Mr Edwards as he is so closely connected to the family. Janet, Rosemary and Sally were in agreement about a change of accountant for the company. Sally to get quotes. This issue to be carried forward until the quotes are obtained.”

Thereafter Sally Harding and Mrs Walton considered various alternative firms to provide services and meetings were held with potential accountants for the company. They concluded that the Company’s business should be transferred to Mr McMorran of the firm R J McMorran.

The Petitioners’ concern over Mr Edwards’ role was not just a general one. There were two specific matters which Sally Harding wanted to pursue but which she felt unable to because Mr Edwards did not cooperate. At the AGM on 23 October 2010, as well as Sally Harding persisting with the need for a change of accountant, she raised a query about the appropriateness of the way in which Mrs Edwards was being paid for her book keeping services. Ms Harding says that the payment of the £1500 to Mrs Edwards for her book keeping and the payment of £500 for accountancy services were lumped together and paid into a loan account in Mrs Edwards’ name. This may have been acceptable at a time when the Company was not making any profits but now that the Company was making money she did not understand why the practice had not been changed. The October 2010 minutes say:

“Also transparency in our accountancy and bookkeeping were discussed. It had been agreed at a 2007 AGM that as the company was now in a considerably more stable position, … our accountancy and bookkeeping fees could now be paid for by the business. Despite this agreement these costs are still being put into a Directors current account in Elizabeth Edwards name and it was agreed that this situation needs to be addressed immediately. 

There is then an email of 17 November 2010 sent by Sally Harding to Mrs Edwards couched in formal terms, raising various queries on the accounts and asking for sight of the records. Again she was objecting to the payments being made to Mrs Edwards for her bookkeeping services via a director’s loan account rather than out of the income of the farm because the book keeping costs were not being treated as a running cost of the Company. Sally Harding pursued this point expressing a suspicion that the loan account was being used as a way for Mrs Edwards to avoid paying tax on this income and that this somehow jeopardised the interests of the other directors in the capital value of the Company. By December 2010, when Mr and Mrs Edwards tried to explain that the use of the loan account did not have the potential adverse effect Sally Harding was concerned about, the email exchanges had degenerated into mutual recriminations involving not only the running of the farm but the parties’ behaviour at family gatherings .

There was also an ongoing dispute between Sally Harding and Mr and Mrs Edwards about the valuation of shares in the Company that were transferred to Mrs Edwards and Mrs Walton to make up the £20,000 legacies that they had received under Mr Harding’s will. Bryan Harding’s intention had been that the legacies would be financed by Mr Harding’s portfolio of stocks and shares in other companies but at the time the estate was distributed the value of that portfolio was not enough to cover the legacies. It was decided that the trust would transfer some shares to Mrs Edwards and Mrs Walton to make up the difference. Mr Edwards valued the shares for this purpose at a lower value than the value that had been used for probate purposes, resulting in the trust transferring more shares to Mrs Edwards and Mrs Walton than Sally Harding had expected. She wanted to know why this was. It is clear from the correspondence that Ms Harding felt that she had not been given an adequate explanation for this and she was suspicious of Mr Edwards’ role in it. She raised these concerns in a letter in October 2005 to Mrs Edwards, Janet Harding and Mrs Walton. That letter followed a stormy meeting held on 9 October. I note that in the minutes of the contentious shareholders’ meeting of 3 August 2012, Mr Edwards refers to this issue and to the fact that the shares have increased considerably in value since they were transferred over to the two legatees. He suggests that he and his fellow trustees intended to look at the transfers to see if there should be an adjustment. I am not aware whether there was any such analysis or adjustment.

I do not regard it as unreasonable for Sally Harding and Mrs Walton to want to move the accountancy work away from Mr Edwards or his firm into more neutral hands. There were clearly potential conflicts of interest between Mr Edwards’ role as the Company’s accountant, his role as Mrs Edwards’ husband and his role as trustee of the trust in which Mrs Harding held a life interest and his wife was one of three remaindermen. Whatever the rights and wrongs of the suspicions being raised by Ms Harding, Mr Edwards did not deal with them promptly and effectively. I regard it as unfortunate that Mr Edwards did not recognise, as a professional person, that he had lost the confidence of two of the four directors of the Company and that that meant it was time for him to step back from his involvement in the accountancy work for the Company.

In the event, the move to another firm of accountants became part of the growing schism between the Petitioners and Mr and Mrs Edwards. There was a meeting of the directors on 3 September 2011 attended by Sally Harding, Mrs Walton and Janet Harding but not by Mr and Mrs Edwards. The meeting agreed to appoint new accountants. Mrs Janet Harding did not vote on that occasion but the vote was carried by the Petitioners voting in favour. At Mrs Edwards’ insistence the matter was debated again at the shareholders’ AGM on 21 October 2011 attended by all the shareholders. The move was again approved, Janet Harding voting on this occasion with the Petitioners and against Mrs Edwards. At a directors’ meeting shortly after, on 19 November 2011, the transition to the new accountant was discussed. It was agreed that all the sisters would meet the proposed new accountant, Mr McMorran in December. There then follows hostile correspondence – in unpleasant and confrontational terms on both sides - between Mr McMorran and Mr Edwards in February 2012 in which Mr Edwards purports to speak on behalf of the Company and Mr McMorran reminds Mr Edwards that he (Mr McMorran) takes his instructions from the directors and not from Mr Edwards. Following the directors’ meeting held on 3 August 2012 (attended by the Petitioners but not by Mrs Edwards) the Petitioners reported the outcome of the meeting to Mrs Edwards:

“It was also agreed that the bookkeeping services would now be undertaken by R J McMorran therefore;-

A.

You are now required to pass all the bookkeeping records to the offices of R J McMorran within 14 days.

B.

As of 30^th September 2012 you will no longer be contracted to complete our general bookkeeping so you will of course no longer be paid by the company for this service. (please note that PAYE payments were never authorised by the board)

C.

We assume the Direct debit for £20 is to cover your phone bill and this will also be cancelled. Please sign the attached mandate letter to the bank to cancel this payment and return to us as soon as possible.”

Subsequently, Mrs Edwards challenged the scope of the instructions that had been given to Mr McMorran and refused to pay the invoice presented for the work on the annual accounts in 2013. Mr McMorran brought court proceedings to enforce payment, and succeeded in getting a judgment against the Company for his fees.

I regard this as an important instance of the shareholders and directors being unable to disentangle their personal animosities from the decisions that needed to be taken about the future of the Company. Sally Harding’s concerns, whether well founded or not, deserved a proper response and did not receive one. Once the directors and the shareholders had voted to move the accountancy work away from Mr Edwards or his firm, he and his wife should have cooperated to ensure this happened smoothly in the interests of the Company. Instead Mr and Mrs Edwards treated it as a personal attack on them (and I accept that they were in some measure right to regard it as such) and obstructed the move so far as they could. This evidence shows that a decision to move accountants, something which should be a straight-forward matter for a small company, became mired in the hostility between the members of the family in a manner which threatened to disrupt the preparation of the Company’s accounts and cause unnecessary expense for the Company.

The dispute over access to the Company records at the registered office

The registered office of the Company was, at the time of Mr Harding’s death, the family home at Ramsey in Huntingdon. In 2007, when Janet Harding moved into a residential care home, the registered office was moved to the home of Mr and Mrs Edwards in Bury Road, Ramsey. This made sense as Mrs Edwards was acting as book keeper and administrator for the Company and needed to have the records and accounts to hand. But the fact that the registered office and therefore the location of the records was the Edwards’ home was bound to cause problems once the sisters started to quarrel. Any exercise by Sally Harding and Mrs Walton of their entitlement qua directors to see the records involved a visit to that home where they were not otherwise welcome as guests.

There is clear evidence of Mrs Edwards withholding access to the company records from Sally Harding and Mrs Walton in retaliation for what she sees as misconduct on their part. Mrs Walton and Sally Harding wrote to Mrs Edwards on 31 March 2012 asking for access to the company records to take place at the Edwards’ home on 7 April 2012. In the same letter they notified her that they wanted to appoint a ‘forensic accountant’ because they were uneasy about the running of the company. This was, as one might expect, an inflammatory move and Mrs Edwards wrote back on 6 April 2012 with various counteraccusations that her sisters’ conduct was an increasing threat to the wellbeing of the Company. She said:

“If you are unable to resolve what you consider to be difficulties with the way the company is run, without resorting to outside or third party input, then I cannot, in the interests of the company, agree to the appointment of any outside agency – and certainly not to a forensic accountant – and neither can I agree to you seeing the books and records whilst you are accusing me of not running the company properly”. ”

Later, on 23 April 2012, Mrs Edwards queried why her sisters wanted to see the books and records:

“Your further threats do not carry any weight with me and I will continue to run the farm as I have done for 10 years in the best interests of all concerned, particularly Mum. The only reason that you can come up with to see the books is that you have ‘a right’. You haven’t given any other reason why you need to see them and have regularly implied that I am not looking after the company properly. Whilst you continue in this threatening and unpleasant manner, then you certainly will not have access to any of the company records”

At the beginning of June 2012, a letter from Mrs Edwards’ then solicitors informed the Petitioners that they could have access to the books and records at the Edwards’ home on the afternoon of 8 June. However, this was then overtaken by the dispute over the Petitioners’ application to the Court of Protection in June 2012 for the appointment of a Deputy to manage Janet Harding’s affairs. An angry email on 5 June 2012 from Mrs Edwards alleged that the Petitioners had deliberately waited until she and her husband were about to go on holiday to apply to the Court of Protection. She continues:

“It is clear that you have no thought or consideration for Mum and her wishes. Don’t ever tell me again that you are doing all this in her best interests. All this is doing is upsetting her and causing her anxiety. …. What you have done has changed everything. Nothing will happen until the Court of Protection matter is resolved. No meetings and no access to the company books.”

I entirely accept that Mrs Edwards’ distress about the Petitioners’ application to the Court of Protection was and is genuinely felt and that the sisters all believe that they are trying to act in the best interests of their mother. Earlier disputes over the proper handling of their mother’s affairs had arisen when Sally Harding tried to act as a proxy for Janet Harding’s shares at a meeting that, in the event, Mrs Harding was able to attend; when a power of attorney naming Mrs Edwards as sole attorney replaced one naming all three daughters and over whether Janet Harding had been unfairly pressured into resigning her directorship of the Company by the Petitioners or had done so freely. The problem is that these family issues about dealing with an elderly parent are mixed up with the Company affairs because the registered office is Mrs Edwards’ home and the parties repeatedly use their respective rights to demand and withhold access to the registered office as weapons in their other battles, to the detriment of the Company.

Following the rival meetings in August 2012 that I will shortly describe, there was an unedifying series of letters in which the Petitioners wrote on Company headed notepaper to various third parties purporting to inform them that the registered address of the Company had been changed to an address which is the business address of the McMorran accountancy firm. One recipient of that letter notified Mrs Edwards saying “I assume this is to do with on-going matters with Rosi & Sally, so I am just checking if this is ‘official’ before amending mailing lists etc”. Mrs Edwards wrote back that there has been no change to the registered address. She then also wrote on Company headed paper to the same third parties telling them that the letter they received was not authentic and the Company’s head office remains her home address in Bury Road. What the third party recipients, which included the Rural Payments Agency, made of this correspondence is not in evidence but this kind of behaviour shows the current unhealthy state of the management of the Company.

The Edwards’ attempts to remove the Petitioners as directors and to appoint Mr Edwards as a director of the Company

Between August and October 2012, Mr and Mrs Edwards made two attempts to remove the Petitioners as directors of the Company. Mrs Edwards’ evidence is that this was prompted not only by the long history of arguments with her sisters about the Company’s affairs but also by the Petitioners’ refusal to sign cheques that she gave them for signature. Mrs Edwards says that suppliers complained that they had not been paid and this put the farm’s business reputation in jeopardy. The Petitioners say that Mrs Edwards did not provide them with enough information for them to be satisfied that the cheques were properly made out and that is why they refused to sign them. On this point I find that the Petitioners could not have had any real concerns over the correctness of the cheques presented. They refused to sign the cheques knowing that this would upset Mrs Edwards and make her work for the Company more difficult. In all the quarrels between the sisters, there has never been any suggestion that Mrs Edwards has handled the daily income and outgoings of the farm improperly. I am sure that Mrs Edwards’ handling of the Company’s money has been at all times entirely honest and straight-forward and that the Petitioners know this to be the case. I accept that she provided the Petitioners with enough information to enable them to sign the cheques or that if, on occasion, she did not, that was not really the reason why they refused to sign them. However, that does not, in my judgment, justify Mr and Mrs Edwards’ response.

By the middle of 2012, the disputes between the sisters had reached such a level that two rival Company meetings were held at 2 pm on 3 August 2012. A directors’ meeting was held at the offices of Mr McMorran convened and attended by Sally Harding and Mrs Walton with Mr McMorran as minute taker. Notice of that meeting was given to Mrs Edwards on 20 July 2012 but she did not attend.

Mrs Edwards convened a shareholders’ meeting at 2 pm on 3 August to be held at her home. This was attended by Mr and Mrs Edwards only. There are formal minutes of this shareholders meeting recording that Mr Edwards described ‘to the meeting’ (that is, to his wife) various allegations of misconduct on the part of the Petitioners which, he said, was gross misconduct which must be prevented from happening again. The minutes then record:

“Mr Edwards proposed that the only course open to the owners of the company and present at the meeting was to suspend them as directors with effect from 2pm on Friday 3^rd August 2012. This was seconded by Mrs Edwards and carried unanimously. Their suspension was to remain in place until further notice or further decisions taken by the company shareholders. They are not to be involved in any aspect of the companies business [sic] whilst they are suspended. They would be informed accordingly.”

Immediately after the shareholders’ meeting, Mrs Edwards purported to hold a directors’ meeting although she was the only director present. The minutes of that meeting record:

“Present: Mrs E G Edwards

This meeting was called immediately after a meeting of the shareholders. The decisions and recommendations made at the shareholders meeting were noted and accepted.

As two of the three directors are now suspended, it was necessary for a further director to be appointed as required by the articles of Association of the company.

A director of the company needs also to be shareholder. Of those eligible, only Mr E J Edwards was willing to be appointed as a director of the company.

…

It was noted that the shareholders strongly recommended that a fourth director should be appointed not only to represent Mrs Harding, but also to restore a proper balance to the board of directors.

Mr E J Edwards was therefore appointed.

Mr Edwards was then invited to join the meeting, and he signified his acceptance of the appointment.

The directors would deal with all necessary matters to ensure the proper and smooth running of the company.”

On 4 August 2012, Mrs Edwards wrote to her sisters informing them of their suspension and asking them to note that they must no longer act or hold themselves out as acting on behalf of the Company in any capacity. Mrs Edwards also amended the details registered for the Company at Companies House to remove the Petitioners’ details and add Mr Edwards’ details. Following protests from the Petitioners at what had happened, Mrs Edwards’ solicitors wrote to the Petitioners on 9 August 2012 conceding that the shareholders’ meeting on 3 August did not comply with the provisions of the Companies Act 2006 and that no valid resolutions had been passed at that meeting.

In October 2012, two further meetings were convened effectively by Mrs Edwards. The first purported to call a general meeting of the company shareholders for Friday 12 October 2012 at Bury Road. The notification is dated 28 September 2012. The agenda items include the removal of the Petitioners as directors of the company. The minutes of the meeting of 12 October, attended only by Mr and Mrs Edwards, note that the Petitioners had challenged the validity of the meeting. The Edwards therefore resolved to convene a further meeting on 19 October to deal with the vote to remove the Petitioners. It records that notice of this later meeting was given on 3 October. The minutes of the 12 October meeting further record that the Petitioners had not acted consistently with their purported suspension from office approved at the 3 August meeting and also noted:

“Mr Edwards, whilst having been appointed as a director at the directors meeting held immediately after the shareholders meeting on 3^rd August, had stood down on a temporary basis as a director, so as not to compromise the position of Mrs Edwards.”

This seems to be at odds with the concession in the solicitors’ letter of 9 August. Notice of a shareholders meeting on 19 October to be held at Bury Road had indeed been sent to the Petitioners on 3 October, again including the removal of the Petitioners as the main agenda item. The minutes of the 19 October meeting assert that notice had properly been given under section 312(4) of the Companies Act 2006 and record that Mr Edwards proposed the removal of the Petitioners; that this was seconded by Mrs Edwards and ‘passed unanimously’. This meeting was then immediately followed by a directors’ meeting, attended only by Mrs Edwards at which it was again purportedly decided to invite Mr Edwards to be a director and Mr Edwards again accepted that appointment.

The parties are in dispute about whether adequate notice was given for the meeting on 19 October for the resolutions to be valid. Section 168 of the Companies Act 2006 provides that a director may be removed by ordinary resolution of the company but that special notice must be given of any such proposed resolution. Section 312 of the Act provides that where special notice is required of a resolution, the resolution is not effective unless notice of the intention to move it has been given to the company at least 28 days before the meeting at which it is moved. Subsections (2) to (4) of section 312 then deal with the situation where it has not been practicable to give notice of the intended resolution at the same time as giving notice of the meeting. I can quite see that the Petitioners would dispute any suggestion that it had been ‘impracticable’ to give 28 days notice of the resolution as well as of the meeting.

There is also a question mark over whether the meeting attended only by Mr and Mrs Edwards was quorate for the purposes of section 318 of the Companies Act 2006. That section provides that there must be at least two individuals who are members of the company. The minutes of the meeting note that:

“It was explained that Mrs E G Edwards held 335 of the issued ordinary shares capital of the company - 16.5%. [Mr Edwards] also explained that he was the named trustee on the share certificate issued on 2^nd January 2009, which entitled him to vote on behalf of the trustees unless any of the other trustees were present. The trustees held 490 shares of the issued share capital - 24.5%. Mr and Mrs Edwards therefore held voting rights 41.25% of the issued share capital of the company. As there were no other shareholders present at the meeting, and more than half an hour has passed since the commencement of the meeting, the meeting was considered to be fully quorate with respect to the voting rights of the shareholders present.”

The fact that Mr Edwards’ name appears on the share certificate for the shares owned by the trust was mentioned at the trial of this action with the implication that this had been brought about by Mr Edwards at some stage without the knowledge of the Petitioners. The Petitioners certainly dispute the suggestion in the minutes that this fact, or the absence of the other trustees at the meeting, entitles Mr Edwards to vote the trust’s shares in support of his wife without the agreement of the other two trustees. The other two trustees have consistently refused to attend any meetings or get involved in the management of the Company and have not signified their consent to any of Mr Edwards’ actions purportedly on behalf of the trust.

Whether or not the removal of the Petitioners from the Company board was achieved on 19 October, the conduct of the shareholders and directors in convening and attending their own meetings and refusing to attend each others does not enable decisions in the best interests of the Company to be taken. The events of August to October 2012 convince me that the future of this Company is likely to be marred by these unconstructive attempts to oust the Petitioners from the Company when they do not want to be ousted. As Lord Wilberforce made clear in Ebrahimi v Westbourne Galleries, the fact that Mr and Mrs Edwards believe that they are acting in the best interests of the Company does not mean that their quasi-partners can be forced to retire from the fray.

The deadlock created by the shareholdings in the Company

The dispute over the validity of the resolutions passed on 19 October 2012 arises, as I have said, in part from the way the shares are held and Mr Edwards’ role as the only trustee of the trust prepared to attend meetings. The shares in the Company were originally divided among the sisters’ grandfather Mr Brand, Bryan Harding and Mrs Janet Harding. Between 1979 and 1983 Mr Brand transferred all his shares to his daughter Janet Harding. In 1996 shares Mr and Mrs Harding transferred some shares to their daughters. At the time of Mr Harding’s death in 2001, the shares were distributed as follows: Mr Harding (520 shares), Janet Harding (520 shares), Mrs Edwards, Mrs Walton and Sally Harding (320 each). In 2004 20 shares each were transferred from the trust to Mrs Edwards and Mrs Walton to make up their legacies under the will as I have already described. At the time of these proceedings therefore the shares are held as follows:

Mrs Edwards therefore has a smaller shareholding than her two sisters combined. The difficulty is that Janet Harding’s shares are no longer actively voted because her Court of Protection Deputy declines to get involved in the decisions needed to take the Company forward. Of more concern is that Mr Edwards persists in purporting to exercise the voting rights of the trust shares at Company meetings even though there is no evidence to suggest that he does so with the support of the other two trustees and indeed plenty of evidence to suggest that the trustees do not support him. With Mr Edwards seemingly intent on adding the trust’s 24.5 per cent to his wife’s 16.75 per cent so that they purport to outvote Sally and Rosemary’s combined 32.75 per cent and assuming Janet Harding’s 26 per cent remains inactive, this is a recipe for decisions being taken and challenged and having to be reversed. The Company is truly deadlocked.

The four aspects of the recent history of the Company that I have described satisfy me that the management of the Company is deadlocked and likely to remain so; there has been a complete breakdown in the mutual trust and confidence that should exist between the sisters and the Company is being improperly managed because the personal hostilities between the sisters seriously impede the taking of proper decisions in the interests of the Company.

From the evidence before me I am satisfied that Mrs Edwards would not under any circumstances be prepared to sell her shares in the Company to the Petitioners. She firmly and honestly believes that in continuing to run the farm, she is carrying out her late father’s wishes and preserving the value of the Company for the benefit of her mother, as her father intended.

In their evidence both the Petitioners acknowledged that they would, with great reluctance, be prepared to sell their shares. There are however a number of difficulties in the way of achieving this alternative to winding up. The first is arriving at a valuation of the shares which is acceptable to the Petitioners and which Mrs Edwards can afford to pay. Different valuations of the farm have been acquired recently. The Petitioners had the land valued by surveyors Strutt & Parker. Their report dated 28 November 2012 gives a likely realisation figure as between £2,250,000 and £2,500,000. There is also a valuation prepared by Richardson, chartered surveyors, on the instruction of Mrs Edwards. Their valuation of the land as at 7 December 2012 is £1,950,000. A more recent valuation has been obtained by the Petitioners from Strutt & Parker valuing the land as at 13 January 2014 at £2.3 million. However, there is an added complication that the Company now has considerable cash reserves which may increase its value and hence the value of the Petitioners’ shares above the simple value of the land. None of these valuations appears to have been taken forward by the parties as an acceptable way to resolve the dispute and avoid a winding up.

Mrs Edwards submits that the Petitioners have unreasonably refused the offer that she has made in her letter of 14 January 2014, shortly before the hearing of this petition. In that letter she proposes that there be a company share purchase of the Petitioners’ shares at a price to be agreed. She asks the Petitioners to agree this in principle and to send a letter of intent ‘duly signed by them and witnessed’. As to the valuation she says she has already started discussions with someone about buying sufficient land to fund the buy out. At the hearing she declined to identify this person though she confirmed that it was not a friend of the family and not Mr Stacey. She says that once the price for that parcel of land has been agreed on an arm’s length basis, that can in turn be the basis for valuing the whole of the farm in order to provide the appropriate price for the Petitioners’ shares. She concludes her letter to the Petitioners’ solicitors by saying:

“Once your clients have signified their definite and irrevocable agreement to this process, then we can progress the necessary negotiations as quickly as possible”

The Petitioners are most reluctant to give their ‘definite and irrevocable agreement’ to a process which leaves the valuation of the land effectively in Mrs Edwards’ hands (albeit with the use of reputable surveyors) and which commits them to selling their shares for a price which is not determined at the point when they enter into that commitment. Given the ill will that currently exists between the parties and Mrs Edwards’ often expressed view that, as between the sisters, the current success of the farm owes everything to her efforts and nothing to the Petitioners’, they do not trust her to refrain from manipulating the proposed negotiations with the undisclosed buyer in a way which minimises the amount the Company will have to pay them for their shares. Whether or not there is any justification for these suspicions, I consider that Mrs Edwards is being wholly unrealistic in insisting that her sisters commit to the sale of their shares without knowing the price they will receive for them. I accept the Petitioners’ submissions that in the circumstances of this case, they did not act unreasonably in insisting that a definite price for the shares should be put on the table before they are expected to commit to a sale.

The Petitioners also make the point that a purchase of their current shareholdings is not a satisfactory resolution to the Company’s problems. When Janet Harding dies, her shares will be split equally between her three daughters. The trust will also then come to an end and its shares will be divided among the sisters. If the Petitioners sell their current shareholdings to Mrs Edwards they may at some point become minority shareholders with about 17 per cent of the shares each as against Mrs Edwards’ then shareholding of 66 per cent. Similarly if the Company buys back and cancels the Petitioners’ current holdings then if the trust’s shares and Janet Harding’s shares are distributed equally among the sisters on Janet Harding’s death, Mrs Edwards’ shareholding will be roughly equal to the Petitioners’ combined holding. If the relationship between the sisters does not improve, there is a risk that the same problems that now trouble the Company will reappear. It is however difficult to resolve the issue of the future shares at this point, because it is impossible to know whether Janet Harding will still own the shares at her death or whether they will have to be sold, for example, to pay for long term care.

In my judgment there is no alternative here to winding up the Company.

In the light of the evidence I have seen, I am fully satisfied that the right thing to do is to wind up this Company. Mrs Edwards’ evidence is that the Company could function very well if the Petitioners ceased involvement in the management. She says:

“It is important that the Court understands that any actions I have taken have not been motivated by a desire to remove my sisters from control of the Company per se, but to ensure that the Company is able to continue to operate on a day to day basis without my hindrance.

I have to agree that at the moment there is a fair amount of ill feeling between myself and my sisters. Whilst I hope that in time this will blow over, and we can move on from the current disputes, I appreciate that at the moment it is certainly difficult for us to work together. However, this does not prevent the proper running of the company, as it does not require three directors to be involved in the day to day administration of the company’s business. As has been clearly and openly demonstrated, one person can run the company quite easily and successfully.”

She describes the Company as currently ‘being put back on an even keel’ without being undermined and jeopardised by the actions of the Petitioners. She has the support of the Company bankers and Mr Stacey who, she says, is now much happier without the involvement of the Petitioners. She concludes that “There is no deadlock whatsoever in the management of the company. There was only deadlock when the Petitioners were directors.”

In my judgment, Mr and Mrs Edwards cannot simply expunge the Petitioners from the Company, much though they would wish to do so. Together the Petitioners hold 32.75 per cent of the shares, which is more than Mrs Edwards’ share. If the Petitioners were content to leave all the management in Mrs Edwards’ hands then the Company might be able to proceed. But they have never been content to do that and now they do not trust Mr or Mrs Edwards to act in the best interests of the Company. The Petitioners are not prepared to take a back seat and Mrs Edwards’ desire to be left to get on with managing the farm is not a desire that is capable of being satisfied. There is no prospect of matters improving and indeed, it is likely that future disputes over Janet Harding’s shares will make matters worse.

I am therefore firmly of the opinion that it is just and equitable that the Company should be wound up and I grant the petition.