Background
Karen McIlroy held 50% of Liberas Solutions Limited, an IT consultancy-services company formed by her husband, Michael McIlroy, and Deon Minaar. She held the shares as her husband’s nominee because his employment position prevented him from becoming a shareholder when the company was incorporated. The court found that she was largely a director in name only, while her husband initially ran the business as a shadow director alongside Minaar.
McIlroy petitioned under section 994 of the Companies Act 2006, alleging that Minaar and the other active respondents had conducted Liberas’s affairs in a manner unfairly prejudicial to her interests. Her complaints included denial of financial and bank access, unauthorized payments to Minaar and his personal service companies, diversion of company profits, removal of consultants from Liberas contracts, and payments for services allegedly not provided by Couture PR.
The Court’s Holding
HHJ Paul Matthews dismissed the petition. The court rejected each pursued complaint, finding that McIlroy had access to financial information and was already a bank signatory; that Minaar’s payments to himself were authorized by agreements reached with Michael McIlroy; and that Minaar had performed the work for which his companies were paid. Their business arrangements had become ad hoc, and by 2020 they had agreed that each principal could retain all fees and margins from his own contracts.
The court also found that Minaar acted honestly in facilitating consultants’ direct arrangements with an end-client when he feared for company funds and sought to protect creditors and Liberas’s reputation. Couture PR had provided invoiced services benefiting the company, and the challenged equipment purchases were not shown to be improper. Because the petitioner failed to establish unfairly prejudicial conduct, no relief was granted under section 996.
The judge added that, even if unfair prejudice had been established, the petitioner’s nominal directorship and her husband’s unauthorized withdrawals and later efforts to obtain company funds would have weighed heavily against relief. Had any remedy been justified, the most the court would have ordered was a £22,000 buyout of her shares, without a minority discount.
Key Takeaways
- A section 994 petitioner must prove conduct of the company’s affairs that caused prejudice to the petitioner’s interests as a member and was also unfair.
- Payments to a director or related service company are not established as unauthorized merely by proving that the payments occurred; the surrounding agreements and evidence of work performed remain material.
- Informal shareholder assent may authorize company conduct under the Duomatic principle, including arrangements allowing principals to retain fees and margins from their own contracts.
Why It Matters
The decision illustrates the evidential burden facing a shareholder who characterizes disputed payments and business decisions as unfair prejudice. The court examined the parties’ actual course of dealing, contemporaneous communications, and practical allocation of responsibilities rather than treating their original business understanding as fixed.
It also underscores that relief under section 996 is discretionary and proportionate. Even where misconduct might be proved, the petitioner’s own conduct and the practical realities of the parties’ relationship can affect whether a buyout or any other remedy should be ordered.