Queensgate Place Limited v Solid Star Limited (in liquidation) & Ors

This judgment deals with the issue of the appropriate remedy for unfair prejudice that has been sustained by a member of a company, Solid Star Ltd (“SSL”). In a previous judgment handed down on 20 September 2023 (Queensgate Place Ltd v Solid Star Ltd & Others [2023] EWHC 2277 (Ch)) (“the Liability Judgment”), I determined that the petitioner, Queensgate Place Ltd (“QPL”) had suffered unfair prejudice as a result of actions by the Second to Fourth Respondents.

As at the liability hearing, QPL was represented by Mr Fenner Moeran KC. The Third Respondent Mr Prakash Bhundia (“Prakash”) appeared in person and, as its director, he also represented the Second Respondent, Viking World Investments SA (“Viking”). The Fourth Respondent, Mr Minesh Bhundia (“Minesh”) was represented by Ms Sarah Bayliss and Mr James Kane of counsel. SSL, the First Respondent, did not play an active role in the hearing but its interests were represented by Mr Jamie Cockfield of counsel who attended and observed the hearing. I did not hear any oral evidence on this occasion. Once again I must record my gratitude to all the advocates for their careful written and oral submissions.

I will not repeat in any great detail in this judgment the facts that I recited and the conclusions that I reached in the Liability Judgment, and this judgment should be read as one with my earlier one. However, by way of summary and to aid understanding of this judgment:

Thus, although SSL carried out the development of the hotel and sold the units that were thereby created (save for the three since recovered by the liquidators), QPL has not received any distribution arising from the development. Indeed it has introduced over £3.8M in capital (its original loan of £3.5M and the further funds of £368,685 pursuant to the April 2017 agreement) into SSL and is now left to prove in the company’s liquidation to recover a fraction of those sums.

On behalf of QPL Mr Moeran KC now seeks an order that Viking, Prakash and Minesh buy its shares in SSL at a valuation which would reflect the loss that QPL has thereby sustained. This is resisted by Prakash and Viking. For Minesh, Ms Bayliss and Mr Kane take a different line. They do not dispute that QPL should be entitled to some form of compensation for the unfair prejudice that it has sustained. However, they seek to place the blame for the unfair prejudice firmly on Prakash’s shoulders and seek an order either absolving Minesh from any obligation to compensate QPL or, in the alternative, limiting Minesh’s liability up to a maximum of 15% of the total compensation awarded.

As a litigant in person, Prakash did not make any detailed legal submissions. However, Mr Moeran, Ms Bayliss and Mr Kane produced a joint bundle of authorities containing 35 cases, although I was referred to considerably fewer than this in the course of their oral submissions. Although each party sought to rely on certain cases as illustrating particular approaches that have been taken by the court when formulating a remedy for unfair prejudice, as was the case at the liability hearing, there was not any significant divergence between counsel on the underlying principles.

The starting point is section 996 of the Companies Act 2006. This provides:

Thus, as Oliver LJ identified in Re Bird Precision Bellows Ltd [1986] Ch 658 at 669D (in relation to the predecessor of section 996), the court has:

The list of potential remedies identified at section 996(2) is, as the section itself makes clear, non-exhaustive. Thus, it is not just existing members of the company that can be required to purchase the petitioner’s shares in the company.

When identifying the appropriate remedy it is important to keep in mind the role of each respondent in the unfairly prejudicial conduct. As Sales J identified in F&C Alternative Investments (Holdings) Ltd v Barthelemy (No 2) [2011] EWHC 1731 (Ch) at [1096]:

For the petitioner, Mr Moeran argues that the appropriate order here is an order for the purchase of QPL’s shares in SSL. Ms Bayliss in her submissions, although identifying that the court has power to order respondents to pay compensation to the company or to the petitioner without making that linked to the purchase of shares, did not seek to argue for that form of relief in preference to a “buy-out” order, and on the facts of this case, the practical differences between an order requiring the respondents to pay compensation to the petitioner and an order requiring the respondents to purchase the petitioners’ shares in SSL are likely to be very limited.

Ms Bayliss did however seek to rely upon the decision of Mr Richard Sykes QC in the case of Re Hailey Group [1993] BCLC 459 as authority for the proposition that requiring a respondent to purchase the shares of a petitioner in an insolvent company is tantamount to imposing a fine on them: there is nothing of any value to purchase (ibid at [473]). However, that case identified that the position may be different if at the time that the substantive relief was sought, the company was solvent:

Here, I note that the petition was issued in February 2021, over a year before judgment was given against SSL in the Lazuli claim, and at a time when there was no immediate reason to suppose that SSL was insolvent. I am satisfied having regard to the authorities that if I consider it otherwise fair and appropriate to do so, I am entitled to make a share purchase order here, notwithstanding that SSL is now insolvent.

Miss Bayliss, by reference to dicta of Vinelott J in Re A Company (No 002612 of 1984) (1986) 2 BCC 99453 at 99495, sought to argue that to impose such a “fine” would not usually be appropriate unless there had been “oppressive” or “unscrupulous” conduct. However, I am satisfied that although Vinelott J, on the facts of that case, considered the respondent’s actions to have been unscrupulous, the judge was not suggesting that a share purchase order could only be ordered in such circumstances. I further note that in that case, although there had been a significant fall in the value of the shares between the date chosen for valuation and the date of the court’s order, that fall appears to have been attributable to market movement in the relevant sector rather than as a result of any default of the respondent.

Ms Bayliss also sought to argue that the means of the respondents should be taken into account when making an order, relying upon Re Cumana Ltd [1986] BCLC 430 at 444. There Nicholls LJ held:

I do not consider that this passage helps Minesh greatly. Whilst I am directed to have regard to his means and those of the other respondents, it seems to me that this is merely one factor which I need to bring into consideration in exercising my very wide statutory jurisdiction under section 996, and if I consider that it is necessary to do so to compensate the petitioner for the unfair prejudice that it has sustained, I may make an order requiring a share purchase even though the person against whom the order is directed may appear to lack the funds needed to satisfy that order.

Ms Bayliss and Mr Kane also referred me to a number of authorities where judges had been required to apportion liability between multiple respondents. Beyond being examples of the general and uncontroversial proposition that a respondent’s liability will depend upon the extent of their involvement in the unfairly prejudicial acts, I did not find these cases to be of any great assistance to my task. Each case clearly depends upon its own particular circumstances.

Having regard to the authorities, and to the situation in which the parties now find themselves, I am satisfied that the appropriate remedy in this case is to order a buy-out of the petitioners’ shares in SSL by Prakash, Viking and Minesh as the authors of the unfair prejudice. Although those shares now have no real value it is clear that, absent the acts of the respondents which caused unfair prejudice to the petitioner, the company had significant assets which would have been available for distribution to its members. I therefore need to identify a valuation for the buy-out which represents a fair assessment of the loss that QPL has sustained because of the respondents’ actions.

Before I turn to questions of quantum, I need to say something about the position of Viking. As will be noted from the Liability Judgment, the acts or omissions that I have found caused unfair prejudice to QPL were acts or omissions of Prakash and Minesh. It is harder to identify the role that Viking may or may not have played in these events, not least because at all material times Prakash has been the sole director of Viking and it is difficult to separate their respective actions and knowledge of events. However, no one (including Prakash who represents both himself and Viking) has sought to persuade me that I should draw any distinction between the acts of Prakash and those of Viking, and the declarations that I made consequent on the Liability Judgment therefore treated Viking and Prakash as being responsible for the same unfair prejudice. In my remedies order Viking will therefore be jointly and severally liable with Prakash and to the same extent.

A further issue that needs to be addressed is that of limitation. Ms Bayliss and Mr Kane have sought to argue that any liability to compensate QPL for the failure to repay the shareholder loans pari passu is limitation barred. This point is not raised in their pleaded case, which is unsurprising as at (1) the time that the petition was presented and (2) the time of the liability trial before me, it was understood that no statutory limitation period applied to petitions under section 994 Companies Act 2006. Instead, the fact that a claim was stale was a factor that the court could take into consideration when formulating its remedy under section 996.

However, and subsequent to my handing down the Liability Judgment, the Court of Appeal has given judgment in the case of THG Plc v Zedra Trust Company (Jersey) Limited [2024] EWCA Civ 158, in which it held that a claim under section 994 Companies Act 2006 is subject, depending upon the relief sought, to either a 12 year limitation period as an action on a specialty under section 8 Limitation Act 1980 or a six year period under section 9 of that act (as an action to recover money recoverable by virtue of an enactment). As a result of this decision Ms Bayliss and Mr Kane identify that, at the very least, some £1,446,789 of the repayments made to Viking of its shareholder’s loan were made more than 12 years before the presentation of the petition and argue that liability for this is now limitation barred. They add that if the claim is viewed as one for a compensatory payment rather than a share purchase order, a further £215,737 falls outside the applicable six year limitation period.

Mr Moeran argues that I should reject this argument in its entirety. His first argument is that limitation is an issue which should have been taken at the liability trial. It was not, and has not been pleaded by Minesh (and no application to amend their Defence was made by Ms Bayliss and Mr Kane). Mr Moeran’s case is that absent a successful application to the Court of Appeal to appeal the Liability Judgment out of time, Minesh is not able to rely on the Limitation Act 1980 as a defence to the petition. He also argues that, in any event, no limitation defence can arise here since there was a fresh breach of duty each year when Minesh failed to take any steps to approve the company’s accounts. A new cause of action therefore arose each year, on the basis that, had Minesh fulfilled his director’s duties, the unequal repayments of the shareholder loans would have been identified and rebalanced.

I agree that this is an issue which should have been taken at the liability stage. That it was not is unsurprising, and I make no criticism of Ms Bayliss or Mr Kane for not doing so. At the time of the liability trial the Court of Appeal’s decision in THG Plc had not been handed down and the Limitation Act 1980 was therefore not generally understood to apply to section 994 petitions. Nonetheless I accept Mr Moeran’s argument that as a matter of formal pleading, it is not now open to Minesh to raise a Limitation Act defence which goes to liability at the remedies stage of this petition.

However, that is not the end of the issue. Ms Bayliss and Mr Kane also argue that even if I do not accept that Minesh can now rely upon the provisions of the Limitation Act 1980 as a partial defence to QPL’s claim, the delay in pursuing this issue is still a matter which can, and should, be taken into account when formulating an appropriate remedy. They therefore argue that I should take into account the fact that elements of QPL’s claim are stale and decline to compensate them for that part of the claim.

In principle, I can see the force in this argument. It is not the fault of either Minesh or his legal advisers that the limitation argument was not raised at the liability trial; rather the availability of this as a defence has only become apparent following the decision of the Court of Appeal in THG Plc. At the liability stage of this petition they had doubtless envisaged arguing these issues at the remedies hearing. Given the wide discretion that I have in fashioning an appropriate remedy, I consider that it would be unfair to prevent them from raising these issues now, and I have therefore taken their arguments into account in this regard.

That said, I have reached the conclusion that although there was clearly a significant delay between the partial and unequal repayment of Viking’s shareholder loan and the bringing of the petition, this does not alter the remedy (either in scope or quantum) that I consider it appropriate to grant in this case. Because I have reached this view for different reasons from those put forward by the parties, I need to provide some explanation for this decision, and I do so at paragraphs 35 et seq below. However, before I do so I need to explain more about my approach to valuation.

Having determined to order a buy-out by the respondents of the petitioner’s shares, I need to identify the appropriate value. The starting point is that the petitioner’s shares should be bought out at a fair price (Scottish Co-Operative Wholesale Society Ltd v Meyer [1959] AC 324 at 369).

SSL was a company which had a single purpose; the redevelopment of the Kensington block of flats. It was not engaged in any other form of trade, and as such I am satisfied that the correct approach to the valuation of QPL’s shares in the company is simply to identify the value of the company’s assets that would have been available to its members had the unfair prejudice not taken place.

I need to decide upon a date for that valuation. Where the company is sold as a going-concern then the date upon which the purchase occurs is likely to be the appropriate date for valuation (Re London School of Electronics Ltd [1986] Ch 211 at 224 per Nourse J). However, fairness to one side or the other may require the court to take another date (Profinance Trust SA v Gladstone [2002] 1 WLR 1024 at [61]). The court’s powers also extend to awarding a sum equivalent to interest where an earlier valuation date is adopted (ibid at [31]). Mr Moeran’s written submissions somewhat ambitiously sought an equivalent to compound interest. However, in his oral submissions he limited his claim to 1% above the Bank of England base rate from time to time.

As to the date for valuing the company Mr Moeran has provided a menu of possible dates.

I do not consider it appropriate to adopt the date of the April 2017 agreement for valuation. Whilst this was indeed the moment that Prakash on behalf of Viking, and Alhaji on behalf of QPL agreed to dissolve their joint venture, I consider that it is entirely QPL’s own fault that this agreement was not implemented. Shortly after the agreement was reached Mr Temi Ugboma was appointed as a director of QPL and he purported to repudiate it. There then followed a period in which Mr Ugboma on behalf of QPL made any form of agreement for the winding up and dissolution of SSL impossible. He was eventually removed as a director at the end of 2019. I have said more about Mr Ugboma’s conduct in the Liability Judgment and I do not consider that it would be fair to the respondents to take a valuation date during the period that Mr Ugboma was representing QPL.

In my view the appropriate date is the date of sale of the six properties sold by SSL to PX1. I agree with Mr Moeran that it was the sale of these properties which proved to be the primary act of unfair prejudice. Had the properties been sold at market value then the net proceeds of sale could have been used to discharge SSL’s liabilities (including the outstanding balances on the shareholder loans) with the remaining funds being available for distribution to SSL’s members. I therefore propose to value the company as at the date of the final sales to PX1 namely 29 October 2020 (this appears to me to be the fairest date for the valuation as it takes into account the fact that Mr Ugboma was still at the helm of QPL when the first two sales to PX1 were made). I adopt the valuations provided by Mr Alford MRICS for these properties namely:

This then permits me to adopt a counter-factual approach and consider what the position would have been if SSL, instead of transferring its remaining properties to PX1, had sold them on the open market and used the net proceeds of sale to repay its liabilities with the balance being distributed among its members. I consider that such an approach will provide me with a fair valuation for the price that should be attributed to QPL’s shares.

This approach also provides an objective mechanism to enable me to assess the relative contributions of Prakash and Minesh to the losses that QPL has sustained. In the Liability Judgment I found that Minesh bore responsibility (jointly with Viking and Prakash) for the transfer of four of the properties to PX1, but that he was not responsible for the first two transfers. I therefore also propose to adopt a second counter-factual hypothesis, looking at what the position would have been if the four properties for which Minesh bears responsibility had been sold on the open market. In doing so, I can identify the proportion of QPL’s losses which can properly be said to flow from Minesh’s acts and omissions.

The adoption of this counter-factual approach also explains my conclusion that the relative staleness of QPL’s complaint about the unequal repayment of the shareholder loans should not affect the relief that I grant.As set out in the Liability Judgment I concluded that the acts and omissions of the respondents had led to four separate heads of unfair prejudice, one of which was the early and partial repayment of Viking’s shareholder loan. Although each of the four heads identified caused unfair prejudice to QPL, I do not consider that the repayment of Viking’s shareholder loan in preference to that of QPL was in fact an effective cause of the substantive loss that QPL has now sustained. This is because until the PX1 property transfers took place in 2019/2020 SSL retained sufficient assets to repay all shareholder loans in full, and the preferential payment of Viking’s shareholder loan could have been corrected. The properties could have been sold and the outstanding loans to both Viking and QPL could have been repaid from the net proceeds of sale.

In my judgment, the substantive cause of QPL’s losses and the reason why it is now appropriate to compensate it for those losses, is the transfer by SSL of the six properties to PX1 in 2019/2020 without taking steps to ensure that full consideration was received or secured for these properties. This was then compounded by Prakash’s involvement of SSL in the development that led to the Lazuli Claim and judgment being entered against SSL in those proceedings.

The difference in the outstanding balances of Viking and QPL’s loan account is therefore a matter which would have been resolved in the distribution of the net proceeds of sale in the counter-factual scenario that I am postulating. Seen in that context, I do not consider that this element of QPL’s claim can be seen as stale and this point has therefore not affected the remedy that I have adopted.

Having determined to adopt a notional valuation date of 29 October 2020, I am satisfied that it is fair that the relief that I grant should also award QPL a sum equivalent to interest at a rate of 1% above the applicable Bank of England base rate from that date to the date of my order.

I therefore adopt the following approach:

Before I turn to the calculations, there is one final point that I need to address, namely the extent of the shareholder loans as at the valuation date. The headline figures, taking into account the repayments to the principal shareholder loans that I identified in the Liability Judgment (which in the case of Viking extend only to 2011) and the further £368,685 introduced by QPL pursuant to the April 2017 agreement are:

However, there is a further issue. As set out in paragraph 71 of the Liability Judgment, SSL’s accounts show that in addition to the principal shareholder loan accounts there was a separate running account documenting payments between Viking and SSL. SSL’s accounts for 2011 (the last year in which it is possible to quantify this account) shows that SSL had provided additional financial support to Viking of £1,188,875. In the Liability Judgment I found that the use of SSL’s funds to support Viking in this way was a further breach of the Shareholders’ Agreement. However, I did not make any findings as to the balance of this running account between Viking and SSL at any date beyond 2011.

This issue now assumes some importance as it will affect the value of assets that should have been available to SSL’s members as at October 2020. For the petitioner Mr Moeran relies upon the 2011 figure and on my comment at paragraph 57 of the Liability Judgment that:

In his submissions Prakash drew my attention to the accounts for SSL for years subsequent to 2011. From 2012 onwards only abbreviated accounts were filed, and in some years no breakdown of creditors is provided. However, the accounts show sums owed to “group undertakings” as follows:

Prakash sought to argue that these figures show SSL’s total liability to QPL and Viking and that therefore by 2018 the sum owed to Viking was in excess of that owed to QPL. I do not accept that Prakash’s version of events can be correct. The figures in the SSL accounts are not consistent with those to be found elsewhere and I have no confidence in them.

I do not have evidence which would enable me to determine this issue arithmetically. It is simply not possible on the documents that I have for me to determine the state of the running account between Viking and SSL at any date after 2011. Nonetheless, I accept that as the development progressed and funds were required to pay for this, it is likely there would have been further changes in the balance of the “running account” between SSL and Viking, and that it is likely that further funds would have been injected into SSL to fund the building works, although I have no way of accurately assessing what actually took place.

However, I note that the April 2017 agreement which Prakash entered into on behalf of Viking and Alhaji entered into on behalf of QPL envisaged that the remaining assets of SSL would be divided equally between its two members (subject to an equalisation payment to reflect the difference in value between the properties each were to receive (Footnote: ¹)). I am therefore confident that, as at this date, Viking did not consider itself to be entitled to a greater sum from SSL than QPL.

I have therefore decided to proceed on this basis.

I will therefore treat QPL as being entitled to a loan equalisation payment of £2,017,402 before any distribution is made to the members generally.

I turn then to place a value on the shares.

Taking the value of the properties that were transferred to PX1 from Mr Alford’s report:

It is common ground between Mr Moeran and Ms Bayliss that a deduction of 1.5% then needs to be made for the costs of sale. Prakash suggested that this should be increased to 1.8% to allow for the VAT that would also have been payable by SSL. However, taking everything into account I am satisfied that 1.5% is a fair deduction. Allowing for this gives a revised total of £14,006,700.

The next stage is to deduct the undisputed third party liabilities of SSL that would have had to have been discharged from the proceeds of sale of the properties (and were met by PX1). These were:

Deducting these liabilities from the net proceeds of sale gives a total figure of:

The next step is to rebalance the loans as between the members of SSL. As set out above the respective balances of the shareholder loans that I am taking into account are:

To equalise the position between QPL and Viking it will therefore be for QPL to receive the first £2,017,401 from the net assets before the balance is divided equally between the two.

Thus the net assets should be divided between the two members of SSL as follows:

Thus, if there had been no unfair prejudice, and the company had been wound up by its members at the date of the last PX1 transfer, QPL would have been entitled to receive a total distribution of £7,081,468. Instead, it has so far received nothing, although it is likely that it will receive a dividend as a creditor from the liquidation of the company. In my judgment the total sum that is therefore required to compensate QPL for the unfair prejudice that it has sustained is £7,081,468 less any sums that it receives from the liquidation of SSL.

However, I do not consider that all of this can fairly be laid at Minesh’s door. As set out at paragraph 167 of the Liability Judgment I concluded (and QPL accepted) that Minesh bore no responsibility for the transfer of the first two properties to PX1. In those circumstances I do not consider that it would be fair to make Minesh jointly and severally liable with Prakash and Viking for the totality of this sum. Nevertheless, it is clear that Minesh’s actions meant that four properties were transferred to PX1 without any corresponding payment being made to SSL for the purchase price.

Three of these properties have now been transferred back to SSL as a result of orders made by me in these proceedings. However, I do not accept the argument made by Ms Bayliss and Mr Kane that the return of these properties means that no loss (at least in respect of these properties) has arisen from Minesh’s actions and omissions. Had there been no default by Minesh, then the significant costs which have arisen as a result of SSL being placed in insolvent liquidation would not have been incurred. There are other liabilities too (such as the unpaid judgment debt from the Lazuli Claim) which also flow from Minesh’s default.

I therefore propose to adopt the following approach to assessing Minesh’s liability. I will apply a counterfactual scenario similar to the one that I have applied above, but looking instead at the funds that would have been available to QPL if only the transfers of the four properties for which Minesh shares culpability had not taken place and those properties had instead been sold at market value and a solvent winding up then occurred.

Taking the value of those four properties from Mr Alford’s report:

Thus, on this scenario, if there had been no unfair prejudice and the company had been wound up by its members at the date of the last PX1 transfer, QPL would have been entitled to receive a total distribution of £3,239,968. This is 45.7%of the distribution of £7,081,468 that would have been received by QPL if all six properties had been retained.

On either scenario, any sum which QPL is entitled to receive in the liquidation of SSL should be deducted. As the three properties that have been recovered are properties in respect of which all three respondents are culpable I am satisfied that any recovery which is available to QPL from the liquidation of SSL should be applied first against the portion of the share purchase price for which Minesh, Prakash and Viking are jointly and severally liable.

In these circumstances, and subject to a final point about Corporation Tax that I raise at paragraph 67 below, I have concluded that the total purchase price for QPL’s shares in SSL should be £7,081,468, together with a further sum equivalent to simple interest at a rate of 1% above the applicable Bank of England base rate from 29 October 2020 to the date of my order. Against that QPL must give credit for any sums it receives from the liquidation of SSL. Liability for the purchase will be as follows:

The share transfer on the sale to the respondents is to remain unexecuted unless and until the earlier of:

As between Minesh on the one hand and Prakash and Viking on the other, I consider that Prakash / Viking as the active wrongdoer behind the unfair prejudice must shoulder the greater part of the blame. Although Minesh clearly failed to fulfil his duties as a director of SSL (thereby allowing Prakash’s own breaches of duty to take place), it was the actions of Prakash and not Minesh which were the ultimate cause of the unfair prejudice. Had Prakash not acted as he did, then Minesh’s failings as a director (significant though they were) would not, on their own, have led to any unfair prejudice. Whilst this does not affect my decision on their liability as against QPL, as between each other, I consider that if Minesh seeks a contribution from Prakash and Viking, their respective culpability should be assessed as 10% Minesh and 90% Prakash and Viking.

A final point that I need to consider is the impact of Corporation Tax on the counter-factual scenarios that I have analysed above. This was not the subject of any argument by the parties, and I have not therefore included it in my analysis. However, it does appear to me likely that in the scenarios postulated above a charge to Corporation Tax would have arisen as a result of the sale of the properties on the open market and that accordingly an allowance should be made for this additional tax liability in calculating QPL’s loss (and thus the purchase price for the shares). I will give the parties an opportunity to make submissions on the extent (if any) to which the figures I have set out above should be amended to reflect this additional liability.

That is my judgment.