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Secretary of State now exempt from providing draft evidence in Director Disqualification cases?

Secretary of State now exempt from providing draft evidence in Director Disqualification cases?

This is a worrying trend for directors threatened with disqualification

I may have missed it so I apologise in advance, but can somebody please point me in the direction of the provision or rule that apparently exempts the Secretary of State for Business, Energy and Industrial Strategy (SoS) in Director Disqualification proceedings from having to provide draft evidence to a targeted director, even in circumstances where the SOS has previously offered in correspondence to provide draft evidence to the director and his/her advisors? It is a recent trend we have come across – and a worrying one.

Until recently a request for the draft evidence was acted on – no longer, it seems

Here At NDP, we are seeing a number of cases where, as part of its section 16 pre-action letter to the director, an offer is made by the SoS to provide the director with the draft evidence that it is intended to rely upon against him if Director Disqualification proceedings have to be commenced.

Back in the day, a routine request for sight of that draft evidence and the exhibit bundle behind it would be met by the provision of those documents.

Worryingly, that appears to be no longer the case, depending on which member of the Insolvency Service team you find yourself corresponding with, on behalf of the director.

The situation varies from case to case

The position appears to vary from case to case. I have two cases on my desk at this time.

In the first case, my request for the draft evidence has (finally) been met with an agreement to provide the draft evidence so that the defendant director can know, understand and be advised about the precise wording of the case that he has been asked to respond to.

That does not seem to be too much to ask, does it?

However, in the second case that is on my desk this morning, the request for the draft evidence, as offered by the SoS, has been met by the following statement, which refuses to supply the requested evidence:

“……I have provided the draft exhibits in support of the allegation for your client’s consideration and whilst my turn of phrase that the allegation against your client is a “straightforward one” was perhaps not the most appropriate, the emphasis was that the exhibits themselves are comprehensive, clear and easy to follow in respect of the allegation and accordingly your client should be able to consider his position based on this information alone (i.e. without the draft evidence).”

The Director should be able to see, and be advised on, the case against him/her

Call me old-fashioned, but when the state is threatening to attack the ability of the director to earn a living and inflict huge reputational damage on the director, the director should be able to see and be advised on the precise case that he is being asked to respond to. Just as in any other litigation claim.

That is perhaps especially so when the Secretary of State offers to provide that evidence but then, for unspecified reasons (that may, of course, include an attempt at cost saving) refuses to provide that evidence.

We believe such actions will leave the SoS wide open to a judicial review

It seems to us that in such a case where evidence is offered but then the SoS declines to provide it, The Secretary of State is leaving himself wide open to a successful challenge by judicial review Application to the Court on application by an aggrieved director.

We have raised this issue with the Secretary of State, highlighting the inconsistent approach of the SoS to this matter. We will report on the response once received.  In the meantime, we would be interested to hear the experience of other practitioners that may have encountered this problem.

Contact us or call us on 0121 200 7040. I would be very interested to hear from you.

Neil Davies (Partner)

Coronavirus: Companies Under Pressure – The Victimisation of Minority Shareholders

Coronavirus: Companies Under Pressure – The Victimisation of Minority Shareholders

Our Commercial Litigation Solicitors Look at How Some Directors are Using the Pandemic as an Excuse to Victimise Minority Shareholders, and What Action Can be Taken

It is not surprising that at this time of unprecedented upheaval that company Directors and Shareholders are under enormous pressure. This can and does result in conflict within a business. This is inevitable. However, there have been instances where Directors and Shareholders are using the Coronavirus Pandemic as an excuse to victimise and treat unfairly their co-Directors and Shareholders.

Not only are emotions running high in these circumstances, the complexities of the limited company structure exacerbate the difficulties for the individual. A party who is being treated unfairly and is trapped within the company, is likely to be a minority shareholder.  As a minority shareholder they cannot pass Ordinary or Special Resolutions and effectively have little or no control over the company’s direction.

Andrew Wylde, one of our  senior Commercial Litigation Solicitors at NDP looks at why this is happening and explains that in these circumstances, it is possible to make an application to court to resolve the situation.

Commercial Litigation Solicitors

Andrew Wylde – Commercial Litigation Solicitor

Why is this Situation Arising?

Conflict within businesses happens all the time, however it is something we are seeing an increase in during the current coronavirus crisis, caused by a combination of factors:

  • Financial pressure.
  • Management pressure arising from the difficulties of managing a business in this current situation.

Such pressures lead to changes in behaviour and often makes the majority pick on the minority. The minority are the ones who the majority want to remove, often using bullying tactics to do so.

We have also seen and heard of examples where the majority can use the current situation simply as an excuse to get rid of someone they do not like.

Examples of this behaviour include:

  • Raising sham disciplinary proceedings against a shareholder who is also an employee on the basis that they are not performing their role properly.
  • Issuing shares ostensibly to raise funds in the current climate but with the real intention of diluting a minority’s shareholding.

What can a Shareholder do?

A minority shareholder (‘minority’ being defined as 50% or less of the shareholding) can Petition the court for the court to resolve the situation that they find themselves in.

The basis of the Petition is that the affairs of the company are being conducted in a manner that is unfairly prejudicial to the interests of shareholders, including the shareholder bringing the claim.

Section 994 The Companies Act 2006 – Petition by a Company Member

A claim for unfair prejudice is made under S994 of the Companies Act 2006. Once the court finds that the Petitioner is being unfairly prejudiced, it may make an appropriate order.

Examples of Unfairly Prejudicial Conduct

The types of conduct which are typically unfairly prejudicial include:

  • Instigating disciplinary proceedings which are sham, with the sole purpose of dismissing the shareholder as an employee
  • Breaches of Fiduciary Duty (Directors failing to act in accordance with the interests of the company).
  • Misuse and misappropriation of company assets.
  • Mismanagement of the company’s affairs provided this is simply not a disagreement as to how the business is being managed.
  • Allotting further shares for the purpose of diluting a minority Shareholder’s shareholding.

The Types of Order the Court can Make

Orders which the Court can make include:

  • Ordering the purchase of the Petitioner’s shares at a price and terms to be determined by the court.
  • Requiring the company to refrain from, or to carry out, an act including amendments to the Articles of Association.
  • Authorising proceedings to be commenced in the name of the company.
  • Ordering that the company be wound-up on the grounds that to do so is just and equitable.

In most cases, the Petitioner’s shares are purchased by the other shareholders.


Certain companies are treated by the courts as quasi-partnerships.

A quasi-partnership can exist where the shareholders also run the business and the monies paid for the shares are not simply an investment. In effect, if the business was not a limited company, it would be a partnership between several individuals working together to make a profit.

Consequences of a Quasi-Partnership

If the Court feels that the business is effectively a quasi-partnership, then it can:

  • Give effect to informal agreements and understanding between the shareholders which had been relied upon by the shareholders, even if they would not otherwise have binding legal force.
  • Acts or omissions that are inconsistent with the parties’ relationship, understandings and agreements may constitute unfairly prejudicial conduct even though such actions or omissions are expressly permitted by the company’s constitution.

In effect, where a court finds a quasi-partnership exists, it has far wider powers to find that certain acts or omissions are unfairly prejudicial and are more willing to intervene in the dispute.

A significant number of private limited companies are quasi-partnerships.

Valuation of the Shares

Valuation is determined on the basis of expert evidence produced by the Petitioner and Respondent.  In most cases, both the Petitioner and the Respondent serve an expert’s report, which is submitted to the court.

The court will determine the market value of the shares after consideration of both expert reports.


  • The aggrieved party issues a Petition at court.
  • There is an initial hearing.
  • Evidence is exchange on both sides.
  • A final hearing takes place at which the court decides how to deal with the parties and their shareholdings.

Our Commercial Litigation Solicitors Conclude

 If you (or a client) have a small shareholding in a company and are being victimised or in some other way treated unfairly, you may feel as if you are trapped and have nowhere to turn. This is especially true at present. However, there are ways of protecting your position. One of the most effective is to ask the court to intervene and make an order under S 994 of the Companies Act 2006.

Contact Andrew Wylde or call us on 0121 200 7040 for a FREE initial discussion

A Message Inspired by Mac, Our Stress Relief Officer

A Message Inspired by Mac, Our Stress Relief Officer

Mac Attends our Weekly ‘Virtual’ Team Meeting

Mac in his capacity as NDP’s Stress Relief Officer (SRO), has as evidenced by the photo below, today attended NDP’s (virtual) weekly Team meeting.

Insolvency Solicitors

Mac, our Stress Relief Officer

Today’s meeting addressed, in particular, the debilitating and damaging  effects  that the Lockdown, working remotely and being separated from loved ones can have on the mind, body and soul of even  the strongest amongst us.

Many of the NDP team spoke eloquently and openly about the common, and in some cases unique, issues faced by us.

Those issues clearly resonated with all of the Team.

The need to talk is as great as it ever was, for the Team, our clients, our family members and our  friends.

Personally, I have found speaking to relatives and friends across the world and those much closer to home, to have helped greatly.

As we look forward, hopefully, to the easing of Lockdown and the ability to resume a less restricted lifestyle, it would be nice to think we can hang on to the ability to find time to stay in touch with each other, purely for the joy it gives.

Mac has certainly taken the lead (see what I did there!) in his failed social distancing with other hounds on his many Lockdown walks – we all have little doubt that his inherent desire to ‘talk’ to everyone and everything he meets will continue.

Just maybe we should follow his example, moving forwards (although with less of the sniffing).

Hopefully, looking at the motley crew on the Zoom link today, barbers shops will be one of the first to re-open.

Stay safe all.

Neil, Suk and all the Team at NDP – including Mac