The relatively recent case of Garofalo v Crisp; Re Valorem Holdings Ltd [2024] EWHC 1737 (ChD) demonstrates the breadth and scope of the courts discretion to order remedies (both final and interim) in an unfair prejudice petition.
Valorem Holdings Limited was a company that sold perfume. Mr Garofalo and Mr Crisp were both shareholders, and Mr Crisp was the CEO.
Mr Garofalo alleged that Mr Crisp had been precuring the company to sell perfume into Russia, in breach of the international trading sanctions put in place following the invasion of Ukraine. Mr Garofolo cited this activity as being a breach of the mutual understandings between him and Mr Crisp (recorded in a written agreement between the two of them), a breach of Mr Crisps fiduciary obligations to the Company and an obvious breach of the criminal law.
Mr Garofalo issued a petition pursuant to s.994 of the Companies Act 2006, claiming that the activities of Mr Crisp (and therefore, the Company) unfairly prejudiced his interests as a shareholder of the Company.
Interestingly, Mr Garofalo issued an application within the petition seeking interim injunctive relief.
The Court considered the application, and the very serious nature of Mr Crisps misconduct, and as a result ordered:-
- Mr Crisp be removed immediately as the CEO of the Company;
- The management team proposed by Mr Garofalo be installed in Mr Crisps place;
- That there be an immediate delivery up of the Company’s books and records;
- That Mr Crisp be the subject of an enhanced disclosure order, requiring him to make available his electronic devices (and those of his wife) so that both could be forensically examined;
- Mr Crisp had to surrender his passport (he was arrested anyway a short time after the order described above was made).
In making the interim order, the court deviated from the traditional first stage for obtaining an injunction, namely whether there was a serious issue to be tried. Instead, the court imposed a higher burden on Mr Garafolo, who was required to demonstrate that he had a “strong prima facie case”. The judge concluded that Mr Garafolo did indeed have a “strong prima facie case” on both deliberate illegality and concealment, and so made the orders recited above.
This is a case where the facts turn on the most dramatic of circumstances, and it is unlikely that the court will be persuaded to make the orders set out above in most cases; it is evident that the serious allegations made in relation to Mr Crisps conduct played a major part in persuading the Court to make these orders. However, what it does show is that the Courts discretion to make orders to regulate the affairs of the company is extremely wide, and the court may be prepared to be extremely interventionist if the facts of the case warrant it.
Next steps
Peter Brewer is a partner in the commercial litigation team at Clarke Willmott LLP. He regularly advises on unfair prejudice petitions and would be pleased to help you if you believe your interests as a minority shareholder are being unfairly prejudiced as a result of the actions of the other shareholders.