Gerard Chimbganda v Judith Kundodyiwa & Anor [2025] EWHC 1543 (Ch)

[2025] EWHC 1543 (Ch)

Case No BL-2024-001840

IN THE HIGH COURT OF JUSTICE

CHANCERY DIVISION

BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES

BUSINESS LIST (ChD)

DERIVATIVE CLAIM

IN THE MATTER OF GOODPEOPLE HEALTHCARE LIMITED

AND IN THE MATTER OF THE COMPANIES ACT 2006

Venue Royal Courts of Justice, Rolls Building, Fetter Lane, London, EC4A 1NL

Date 19/06/2025

Before

MR JUSTICE FREEDMAN

Between

GERARD CHIMBGANDAClaimant

JUDITH KUNDODYIWADefendant

GOODPEOPLE HEALTH CARE LIMITEDDefendant

Gregor Hogan (instructed by Fieldfisher LLP) for Claimant

Martin Budworth (instructed by KBL Solicitors) for Defendant

Hearing Hearing date: 1 May 2025

Approved Judgment

This judgment was handed down remotely at 3pm on Thursday 19 June 2025 by circulation to the parties or their representatives by e-mail and by release to the National Archives.

Introduction

[1]This is a case where permission is sought to continue a derivative claim brought by a shareholder on behalf of a company where the same shareholder has at the same time brought a shareholder petition under section 994 against the other shareholder. Such cases frequently come before this Court. It is a common response that permission should not be given because the shareholder’s true complaint is as shareholder and there is no need for a derivative action when the gravamen of the complaint can be dealt with in the petition. It is frequently the case that the shareholder seeks an indemnity in respect of its costs in the derivative action, which is not available in a shareholder petition. It is often this feature which leads to or is a major factor in the refusal of permission on the basis that the company’s funds should not be depleted due to what is in essence a shareholder dispute.

[2]It was a feature of this case that such an indemnity was sought, and, if it had been maintained, it may have been an obstacle in the way of a permission application. In the event, the claim for an indemnity was withdrawn shortly before the hearing before the Court. The Claimant accepts as between himself and the company (and irrespective of the position as between the Claimant and the First Defendant) that he, and not the company, must bear the costs in the derivative action as well as in the petition. The First Defendant states that this concession is a sign that the Claimant recognises the weakness of its position. The claim to the indemnity having fallen away, it is said by the First Defendant that there is no longer any point in the derivative claim.

[3]In circumstances which will be set out in greater detail below, the Claimant alleges that the First Defendant has been in breach of her duties to the Second Defendant. More particularly, this is alleged to be by(a) mismanaging its finances,

(b) incurring expenditure for the benefit of herself, her family and others associated with her,

(d) diverting business opportunities to a company owned by her sister. The First Defendant denies each of these allegations against her.

[4]She says that the Claimant has operated a business in Ireland called Minana International Limited (“MIL”) owned as to 50% by her and as to 50% by the Claimant and his wife through the company Even Better Value Enterprises Limited. The First Defendant has made very serious allegations of breach of duty against the Claimant in respect of MIL. It is said by the First Defendant that the proceedings in this jurisdiction are a form of retaliation by the Claimant because of the allegations made against him in Ireland. There are separate proceedings in Ireland relating to MIL but not relating to the Second Defendant.

[5]In December 2024, the Claimant issued a petition under section 994 of the Companies Act 2006 in which he complained about breaches of duty and contended that this comprised unfairly prejudicial conduct against him as a shareholder. He sought an order that the First Defendant be ordered to sell her shares in the Second Defendant to him.

[6]On 23 December 2024, the Claimant made a derivative claim on behalf of the Second Defendant arising out of the same alleged breaches of duty. The Claimant has obtained first stage permission in respect of that claim. In this application on notice he seeks a second stage permission to continue with that claim. This is opposed.

Background

[7]The Claimant and the First Defendant each hold one share in the Second Defendant and are its sole directors. The business of the Second Defendant involves the provision of domiciliary care services to local authorities, particularly through the use of migrant care workers.

[8]The background to the establishment of the Second Defendant is that the Claimant and the First Defendant have a separate business operation in the Republic of Ireland providing services through MIL which is owned as to 50% by the Claimant and his wife, who is a cousin of the First Defendant, through the company Even Better Value Enterprise Limited, and as to 50% by the First Defendant. The allegations made against the Claimant in Ireland are that he has purported to take over 95% of the shares of MIL. It is said also that he has paid to himself more than €500,000 characterised as a dividend. When challenged about this, it is said that the Claimant promised that an equal dividend would be provided for the benefit of the First Defendant in the next year, which was agreed. However, the First Defendant says that this was not paid to her. Proceedings were issued in Ireland in January 2025. The First Defendant says that the allegations against her in this jurisdiction are not made in good faith and are, as noted, retaliatory to the proceedings in Ireland.

[9]It is not clear from the documents which the Court has been shown that the allegations in Ireland in respect of MIL preceded the allegations in the UK in respect of the Second Defendant. The Claimant has drawn attention to documents which are said to show the following. The oppression petition in Ireland came after the petition and derivative claim in the UK in January 2025. Further, the issues of the Claimant in respect of the management of the Second Defendant started from April 2022: see para. 14 of the Claimant’s witness statement in respect of the derivative action. The correspondence in respect of the company in Ireland started in January 2023. The Claimant says that this chronology is inconsistent with the contention that the allegations in the UK were retaliatory to the allegations in Ireland.

[10]In April 2022, the Second Defendant bought a company called Care Direct (Salford) Limited which had an existing business operating in the domiciliary care field. Before then, there was agreed a division of labour between the Claimant and the First Defendant, that is that the First Defendant would have day-to-day management of the Second Defendant. The Claimant’s case is that he discovered that the First Defendant has breached her duties to the Second Defendant and has made the allegations summarised at paragraph 3 above.

[11]The Claimant says that the purpose of the derivative claim is to remedy the wrongdoings and the losses suffered by the Second Defendant. He says that the harm caused to the Second Defendant is financial, reputational and regulatory. He claims that he wishes in good faith to remedy this.

[12]The First Defendant denies these allegations. She says that the allegations are contrived and created for the tactical purpose of deflecting attention from the allegations made by her in the Irish proceedings. The First Defendant submits that this is a private dispute between two members of a company and one very much wrapped up with a larger and prior dispute concerning misconduct of the Claimant in the Irish company, MIL.

[13]The First Defendant says that a reasonable director of a company acting in accordance with the duty to promote its success would not seek to continue with the claim and therefore the court should refuse permission under section 263(2)(a) of the Companies Act 2006. Further, she says that the Claimant has a remedy in his own right which he is already pursuing under the section 994 claim. In any event, the Court should not be persuaded that the Claimant is acting in good faith for the benefit of the company: on the contrary, the First Defendant’s case is that the Claimant acting in his own self-interest and for an ulterior motive.

[14]The First Defendant has filed detailed witness statements in order to defend herself and the Claimant has replied in detail. The result is that they have filed three witness statements each and there is as a result a large amount of documentary material before the Court. In the written arguments, the parties have avoided detailed reference to the evidence on the basis that, as they accept, a mini-trial of the issues for trial ought not to be undertaken on a permission application.

The nature of the two claims

[15]The allegations made by the Claimant are substantially the same in the shareholder action and in the derivative claim. They comprise the following:(1) Failure to account for moneys: of over £1,000,000 paid in to the accounts of the Second Defendant, the First Defendant failed to account adequately for about £501,000. The Claimant’s skeleton argument refers to this in more detail at paras. 41-44. In short, as the Claimant sought details, the First Defendant was unable to provide detailed information in response.

(2) There is also said to be a failure to account adequately for expenditure, where the information provided is said to be sometimes vague and inconsistent as set out in the Claimant’s skeleton at paras. 45-52. An example was in respect of seven payments (totalling £25,508) to a company called Kundox Medical Limited, which is owned by the First Defendant and her husband where there was an assertion without documentation that the payments were ‘in respect of dividends and monthly directors’ fees’.

(3) Misuse of the CoS licence: there was alleged misspending on the CoS licence. It is said that the First Defendant has been unable to account for £108,000 spent on this or at least that there are tens of thousands of pounds not accounted for, and such explanations which have been given have been inconsistent: see the skeleton argument of the Claimant at paras. 53-66. It is submitted on behalf of the Claimant that despite attempts to do so in her third witness statement, the First Defendant has been unable to reconcile each CoS licence with each contract of employment.

(4) There are other allegations about Mr Busari (which is related to misuse of the CoS licence, diversion of corporate opportunities and non-payment of tax).

[16]The First Defendant says the following:(1) she has undertaken work which has made good, alleged inadequacies save to the extent that she is unable to provide information due to not having the documents, which she says has been through no fault of her own.

(2) the nature of the allegations generally is challenged: they are created by asking questions and to the extent that the First Defendant does not have information to answer them, there is an allegation of misappropriation. It is said by the First Defendant that there is no inference capable of being drawn, and all of this ignores the obligation on the party making the claim to substantiate it.

(3) the First Defendant has instructed independent forensic accountants to provide information. She rejects the arguments about inconsistencies and vagueness and says that she has done her best on the records currently available.

(4) as noted above, the allegations are said to be retaliatory because of the dispute in Ireland which involved larger sums of money. In particular, it involved misappropriation of money, particularly as regards dividends obtained on the basis of a reciprocal basis which was not honoured. As noted above, the Claimant refutes the claim that the allegations made in this jurisdiction were retaliatory.

[17]The Court is unable to form a view at this stage without conducting a mini-trial as to what was the cause of the paucity of information. The citations from the Claimant’s skeleton argument above are not because the Claimant has made good the same but is a way of identifying allegations which are only summarised very briefly in this judgment. The First Defendant says that it is due to circumstances beyond her control of the First Defendant in that she says that she has been denied access to information. The Claimant says that the failure to account is due to the First Defendant.

[18]It is not necessary to decide who is right as between the Claimant and the First Defendant at this stage, let alone to conduct a mini-trial. It is to the statutory structure including the extent to which the merits need to be considered that this judgment now turns.

The statutory framework

[19]The Companies Act 2006 contains provisions in respect of the circumstances in which permission will be given for a derivative action. There should be noted in particular section 263 which provides as follows: (2) “Permission (or leave) must be refused if the court is satisfied—(a) that a person acting in accordance with section 172 (duty to promote the success of the company) would not seek to continue the claim …. (3) In considering whether to give permission (or leave) the court must take into account, in particular— (a) whether the member is acting in good faith in seeking to continue the claim;

(b) the importance that a person acting in accordance with section 172 (duty to promote the success of the company) would attach to continuing it; …. (f) whether the act or omission in respect of which the claim is brought gives rise to a cause of action that the member could pursue in his own right rather than on behalf of the company.” (a) that a person acting in accordance with section 172 (duty to promote the success of the company) would not seek to continue the claim …. (a) whether the member is acting in good faith in seeking to continue the claim; (b) the importance that a person acting in accordance with section 172 (duty to promote the success of the company) would attach to continuing it; …. (f) whether the act or omission in respect of which the claim is brought gives rise to a cause of action that the member could pursue in his own right rather than on behalf of the company.”

[20]Section 172 of the Companies Act 2006 reads as follows:

“A director of a company must act in the way he considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole, and in doing so have regard (amongst other matters) to— (a)the likely consequences of any decision in the long term, (b)the interests of the company's employees, (c)the need to foster the company's business relationships with suppliers, customers and others, (d)the impact of the company's operations on the community and the environment, (e)the desirability of the company maintaining a reputation for high standards of business conduct, and (f)the need to act fairly as between members of the company. (2)Where or to the extent that the purposes of the company consist of or include purposes other than the benefit of its members, subsection (1) has effect as if the reference to promoting the success of the company for the benefit of its members were to achieving those purposes. (3)The duty imposed by this section has effect subject to any enactment or rule of law requiring directors, in certain circumstances, to consider or act in the interests of creditors of the company.”

[21]Section 994 of the Companies Act 2006 allows a member of a company to apply by petition for an order under Part 30 on the ground:

"(a) that the company's affairs are being or have been conducted in a manner that is unfairly prejudicial to the interests of members generally or of some part of its members (including at least himself), or (b) that an actual or proposed act or omission of the company (including an act or omission on its behalf) is or would be so prejudicial."

[22]Section 996 of the 2006 Act states:

"(1) If the court is satisfied that a petition under this Part is well founded, it may make such order as it thinks fit for giving relief in respect of the matters complained of. (2) Without prejudice to the generality of subsection (1), the court's order may— (a) regulate the conduct of the company's affairs in the future; (b) require the company— (i) to refrain from doing or continuing an act complained of, or (ii) to do an act that the petitioner has complained it has omitted to do; (c) authorise civil proceedings to be brought in the name and on behalf of the company by such person or persons and on such terms as the court may direct; (d) require the company not to make any, or any specified, alterations in its articles without the leave of the court; (e) provide for the purchase of the shares of any members of the company by other members or by the company itself and, in the case of a purchase by the company itself, the reduction of the company's capital accordingly." (i) to refrain from doing or continuing an act complained of, or (ii) to do an act that the petitioner has complained it has omitted to do; (c) authorise civil proceedings to be brought in the name and on behalf of the company by such person or persons and on such terms as the court may direct; (d) require the company not to make any, or any specified, alterations in its articles without the leave of the court; (e) provide for the purchase of the shares of any members of the company by other members or by the company itself and, in the case of a purchase by the company itself, the reduction of the company's capital accordingly."

[23]In Hollington onShareholders’ Rights 10th Edition at para. 6-19, reference is made to the first stage when a judge at the inception of the petition is asked to permit the claim to proceed. There is then a second stage in a contested case, which is the stage of consideration in the instant case. Of that second stage, Hollington states: “At the second stage, in contested cases, the court hears all interested parties and has to decide whether to allow the claim to continue and if so on what terms as to costs and the like. It is never more than a provisional decision which can be reviewed thereafter and will invariably provide for its review at appropriate stages. It is a very important decision with far-reaching consequences and significant potential for injustice, and yet also a peculiarly difficult decision since it involves many subjective factors, in particular(i) where the interests of the shareholders as a whole lie and

(ii) the merits of the claim against the company, with all the concomitant difficulties of the extent to which it is right to investigate them at the permission stage. The decision-making process at the second stage has been likened to that of the grant of interlocutory injunctions where the extent to which the merits should be investigated and where the balance of justice and injustice lies are often fraught issues.

[24]In Iesini v Westrip Holdings Ltd

[2009] EWHC 2526 (Ch)

; [2010] B.C.C. 420at [76]–[79], Lewison J (as he then was) described the then new two-stage permission procedure under the statutory code as follows:

“79. …I do not consider that at the second stage this is simply a matter of establishing a prima facie case (at least in the case of an application under s.260) as was the case under the common law regime, because that forms the first stage of the procedure. At the second stage something more must be needed. InFanmailuk.com Ltd v Cooper [2008] EWHC 2198 (Ch); [2008] B.C.C. 877 Mr Robert Englehart QC said that on an application under s.261 it would be ‘quite wrong … to embark on anything like a mini-trial of the action’. No doubt that is correct; but on the other hand not only is something more than a prima facie case required, but the court will have to form a view on the strength of the claim in order properly to consider the requirements of s.263(2)(a) and 263(3)(b). Of course any view can only be provisional where the action has yet to be tried; but the court must, I think, do the best it can on the material before it.”.”

[25]A further view on the approach to be taken was expressed by David Richards J (as he then was) in Abouraya v Sigmund

[2014] EWHC 277

. At [53], he said:

"The first requirement is that the claimant must demonstrate a prima facie case that the company… is entitled to the relief claimed. A prima facie case is a higher test than a seriously arguable case and I take it to mean a case that, in the absence of an answer by the defendant, would entitle the claimant to judgment. In considering whether the claimant has shown a prima facie case, the court will have regard to the totality of the evidence placed before it on the application."

[26]The bar in s.263(2)(a) will only apply if no director acting in accordance with s.172 duty would seek to continue the claim. If, however, some might and others would not, then the case is one for the application of s.263(3)(b) (Minority Shareholders: Law, Practice, and Procedure 7th ed. at para. 2.80; Iesini v Westrip Holdings Ltd

[2009] EWHC 2526 (Ch)

at [86]).

[27]In respect of the requirement of good faith, Lewison J in Iesini said the following:(a) a claim of this type is made in good faith when it is made honestly and with no ulterior motive (Iesini [118])

(b) whoever comes forward to start the proceedings must be doing so for the company’s sake not for any other purpose (Iesini [115])

(c) this is a matter of grace so one’s own conduct may be a disqualifying factor (participation in the wrongdoing would tend to be fatal) (Iesini [115]).

(d) ‘if the claimant brings a derivative claim for the benefit of the company, he will not be disqualified from doing so if there are other benefits which he will derive from the claim’ (Iesini at [121]).

[28]In respect of the fourth of those criteria, the question is whether the derivative claim is for some ulterior purpose unrelated to the subject matter of the litigation (Minority Shareholders at para. 2.94). For example, a derivative claim pursued so as to ensure ultimately that the value of the Claimant’s shares in a buy-out is ‘full and fair’ is not one pursued in bad faith (see Franbar Holdings Ltd v Patel

[2008] EWHC 1534 (Ch)

; [2008] B.C.C. 885 at [33]).

[29]Section 263(3), which applies if the absolute bar in s.263(2) is not engaged, sets out the factors that the Court is to take into consideration when exercising its discretion as to whether to grant permission. As regards s.263(3)(a), it will often be the case that where a prima facie case is made out, it will be difficult to infer or to show that an applicant for permission does not honestly believe that the company has a cause of action and that the case has a reasonable prospect of success. As Humphreys J said in Monaghan v Castlecroft Securities Limited [2021] NICh 14 at [37]: “The affidavit evidence in this application reveals a multitude of factual disputes, the resolution of which is not possible in the context of this type of application. They do, however, illustrate the difficulty a court has at this stage in reaching a finding that a litigant is acting dishonestly in pursuing a cause of action. I fully concur with the view of Lord Glennie in Wishart –v- Castlecroft Securities

[2010] BCC 161

: "It seems to me that it will be a rare case, requiring precise averments and cogent evidence, where an application for leave is refused on the grounds that the petitioner is not acting in good faith."

[30]As regards s.263(b), in Iesini at [85], Lewison J held that a director, acting in accordance with their s.172 duty, would take into account inter alia:

‘…the size of the claim; the strength of the claim; the cost of the proceedings; the company’s ability to fund the proceedings; the ability of the potential defendants to satisfy a judgment; the impact on the company if it lost the claim and had to pay not only its own costs but the defendant’s as well; any disruption to the company’s activities while the claim is pursued; whether the prosecution of the claim would damage the company in other ways (e.g. by losing the services of a valuable employee or alienating a key supplier or customer) and so on.’

[31]Lewison J noted that the ‘weighing of all these considerations is essentially a commercial decision, which the court is ill-equipped to take, except in a clear case’. The Court should not take a mechanistic approach (Minority Shareholders at para.2.99). Indeed, ‘[a] director will often be in the position of having to make what is no more than a partially informed decision on continuation without any very clear idea of how the proceedings might turn out’ (Franbar Holdings Ltd v Patel at [36]).

[32]As regards s.263(3)(f), the availability of an alternative remedy is not an absolute bar to permission being granted (Iesini at [123]). This applies as much to the availability of a s.994 petition as to any other remedy. Indeed, the different nature of a s.994 petition from an ordinary civil claim must not be forgotten (see, e.g., Stainer v Lee

[2011] BCC 134

at [51]; Hollington on Shareholders’ Rights 10th ed. at para.6-48).

Application of principles where overlapping claims

[33]In Phillips v Fryer

[2013] BCC 176

, the claimant sought permission to continue a derivative claim, related to alleged unauthorised payments to the defendant directors, which had ‘considerable, although not complete, overlap’ with a s.994 petition which he had already issued in which the claimant was seeking an order that he buy-out the defendants (at [5] and [18]). Mr Nicholas Strauss QC, sitting as a Deputy Judge of the High Court, noted that there was an inherent difficulty where ‘what is required is both an order requiring the defendant to sell his shares and recovery by the company’ (at [20]) and nonetheless gave permission to continue the claim noting that the question was really one of case management.

[34]Similarly, a derivative claim was permitted to continue when the claimant’s primary preferred remedy was a personal one under an associated joint venture agreement. The personal claim was commenced before the derivative claim was issued: see Cullen Investments Ltd v Brown

[2015] EWHC 473 (Ch)

at [61]. The Deputy Judge, Mr Mark Anderson QC noted that the actual disputes in the derivative claim would have to be litigated in the claimant’s personal claim in any event and so the derivative claim added nothing to the burden of litigation (at [62]). At para. 61, he recognised the possibility that the personal claim may fail, whereas the derivative proceedings may succeed. The Deputy

Judge said:

“That strikes me as a conventional response to the risk that the company and not Cullen may be entitled to some or all of the relief which Cullen seeks. The derivative proceedings are a precaution against that potential injustice; and a precaution is worth taking notwithstanding that it is only that and may never actually turn out to be necessary.”

[35]The Court has been taken through a considerable number of cases of overlapping claims of petitions under s.994 and of the derivative claim. There is no benefit in going through each of them. It is frequently the case that the Court has refused to give permission to proceed with the claim in the derivative action on the ground that there was no need to do so in view of the availability of alternative remedies. They include the following cases to which I have been referred and have taken into account, namely:(1) Mumbrayv Lapper [2005] B.C.C. 990 at [24-25];

(2) Jafarini-Fini v Skillglass Ltd [2005] B.C.C. 842 at [54], where permission to bring a derivative claim was refused on the basis that the issue between the parties was who controlled the company;

(3) Mission Capital v Sinclair [2008] B.C.C. 866 at [39. 41 and 46] and Franbar Holdings Ltd v Patel at [54], where the existence of alternative remedies was held to be the main factor militating against the grant of permission to continue a derivative action;

(4) Kleanthous v Theodoros Paphitis

[2011] EWHC 2287

at [80–81], where the Judge suspected that a derivative action had been chosen in order to obtain an indemnity from the company for his costs, and permission to bring a derivative claim was refused due to the availability of other remedies and for other reasons;

(5) Ritchie v Union of Construction, Allied Trades And Technicians

[2011] EWHC 3613 (Ch)

where permission was refused due to the availability of other remedies notwithstanding that without an indemnity only potentially available in derivative claims the claimant may have been unable to litigate;

(6) Gill v Thind

[2020] EWHC 2973 (Ch)

at [79]–[91], especially at [90-91] where the derivative claim was not allowed to proceed due to the unfair prejudice jurisdiction being an “eminently suitable” alternative remedy.

[36]The parties placed emphasis on the recent Court of Appeal judgment in Ntzegkoutanis v Kimionis

[2023] EWCA Civ 1480

(“Kimionis”). That was a case of two equal shareholders and directors of a joint venture company. In a section 994 petition, the petitioner complained that he had been excluded from management of the company and that the respondent had mismanaged the company and misappropriated assets to his detriment. The relief sought in the petition included compensation for the company and that property was held on constructive trust for the company as well as an order allowing the petitioner to purchase the shares of the respondent.

[37]The first instance judge struck out the claims for compensation and for constructive trust on the ground that due to a Hong Kong case of Chime Corp Ltd. [2004] HKCFA 73, it was only in a rare and exceptional case that the court would permit an application for relief in favour of a company in a shareholder’s unfair prejudice petition. The Court of Appeal allowed the appeal, holding that the same acts could amount both to mismanagement which was unfairly prejudicial to the petitioner and to misconduct in breach of a director’s duties causing harm to the company. In those circumstances, it would rarely be right to strike out a petition or paragraphs of a petition which contained a claim for the benefit of the company on the basis that it could have been brought in a derivative action, unless the petition was being used to evade the requirements of Part 11 of the Companies Act 2006.

[38]On the facts of that case, the Court of Appeal was of the view that the parts of the petition which were about relief in favour of the company did not amount to an abuse of process and should not be struck out. The suggestion in the instant case is that given that there was a wider jurisdiction than might have been thought to have claims in favour of company in a shareholders’ petition, so it should now be abusive or wrong to bring an overlapping claim as a derivative claim instead of as a shareholder’s action.

[39]In my judgment, this does not follow. It is one thing restricting the circumstances in which an action will be struck out as abusive. It is not the same to say that since a claim could have been made in a shareholders’ petition that it is abusive to have both a derivative claim and a shareholders’ petition. Despite the case ofKimionis, there are still potential attacks against the use of the section 994 jurisdiction for claims brought by the company. They include that it may be said that:(1) the claim is a device to avoid the scrutiny of permission under Part 11 of the Companies Act 2006;

(2) the relief sought is not necessary because the claim is not for the company but for the shareholder, and the issue can be confronted in connection with valuation on an assets sale.

[40]On the other hand, the following can be said: (1) it is not the corollary that it may not be an abuse of process to claim relief for the company in some circumstances in a shareholders’ claim that it will be an abuse of process to make such a claim in a derivative action. This point is supported by what was said in Taylor Goodchild Ltd v Taylor

[2021] EWCA Civ 1135

. In the later case of Kimionis at para. 52, Newey LJ summarised what he had said in the earlier case of Taylor Goodchild as follows:

“I took the view that while the court might have had jurisdiction to grant relief under section 996 of the 2006 Act along the lines of the company now sought, it did not follow that the claim should have been asserted in the unfair prejudice proceedings or that the company’s claim was abusive.”

Sir Nigel Davis in Kimionis agreed and said at [50] “"In jurisdictional terms I can accept that Mr Goodchild could have sought to introduce into the unfair prejudice proceedings the derivative claims in respect of the WIP and Account of Profits. The real question, as I see it, is whether he should have done, such that his failure to do so renders an abuse of process the subsequent proceedings brought by the Company raising these claims." (2) if the petition had to be amended to include the company claim, it was not a foregone conclusion that this would have been uncontroversial. It may have led to the argument that the claim was in reality a shareholder claim and not brought for the company. Alternatively, it might have been said that it was an impermissible attempt to avoid the stringencies of Part 11 of the Companies Act 2006: see Kimionis at para. 55(iii). (3) if the case is fought with the amendment, it might still be that the petition would be dismissed, for example, because there was no unfair prejudice to the claimant qua shareholder even if there were wrongs to the company which needed to be remedied and which might have been enforced had there been a derivative action.

[41]In short, the reasoning in Kimionis eases the path to the inclusion in a section 994 petition of a claim for shareholder relief and in the alternative for the company. This is provided that the intention was not to evade the requirements of Part 11. As Newey LJ said at para. 55(iv) “if a petitioner considers, for example, that such facts could warrant a share purchase order or, failing that, at least the grant of relief in favour of the company, I should not have thought that it would be improper to claim both in an unfair prejudice petition.” In the same paragraph, he said that it would ‘not seem…to be very convenient’ ‘from a practical point of view’…to insist that the claim for relief in favour of the company be the subject of a separate claim form. Even supposing that, on the particular facts, it would make more sense for the order in favour of the company to be pursued in a distinct derivative claim, it seems to me that it would rarely be right to deem the petition or any relief sorting it to be abusive if all the heads of relief were being pursued otherwise than to evade the requirements of Pt. 11.”

[42]Within the above is the recognition that on the same facts, there might be scope for the relief for the company to be either in a distinct derivative claim or in a shareholder action without making one or other necessarily abusive. In short, it does not follow simply from the fact that one course is more convenient that the other course is abusive.

[43]There is a case management issue as to how to proceed. The fact that others might have proceeded in the section 994 petition alone does not necessarily require someone to amend the section 994 petition to incorporate the company claim. Each case must be decided on its own facts consistently with the overriding objective.

Submissions of the First Defendant that permission should be refused

[44]First, it is said that a comparison of the shareholder’s petition and the derivative claim shows that the claims are virtually identical save that in the shareholder claim, it is said that the conduct was unduly prejudicial to the Claimant as shareholder leading to section 994 relief of a buy-out, whereas the derivative claim seeks damages or compensation in favour of the Second Defendant. The submission is that no reasonable director would wish the First Defendant to support such a case because it was for the benefit of the Claimant as the other shareholder and not for the benefit of the Company. This point is said to be particularly so because of the nature of the relief in the petition which is a buyout valued taking into account the losses caused to the Company, that is to say “a fair value to be determined by this court or an independent valuer taking into account the loss and damage suffered by the company and/or gains received directly or indirectly by the First Respondent as a result of her breaches of duty as pleaded above and the Company's entitlement to recover the same from her”.

[45]Second, it is said that the relief sought in the derivative claim could be the relief ordered in the petition, particularly in the light of the decision of Kimionis. The derivative claim is therefore pointless.

[46]Third, the derivative claim is not pursued in good faith. This is apparent from the fact that at its inception and until recently, it was relied upon so that the Claimant could seek an indemnity in respect of his costs out of the assets of the Second Defendant. The First Defendant submits that the renunciation of the claim for an indemnity has removed the whole point of the derivative claim.

[47]Fourth, in any event, the derivative claim has not been brought in good faith in that it is alleged that the derivative claim is, with the petition, designed to distract attention from the wrongs said to have been committed in Ireland. This is not a case of a failure to account. It is said that the premise of the Claimant is a false one in that there is no inference from a failure to answer questions where the First Defendant did not have relevant documents through no fault of her own. Seen in this context, it is said that the derivative claim does not even raise a prima facie case.

Submissions of the Claimant that permission should be given

[48]First, the question is one of discretion for the Judge who is to weigh the relevant factors and come to a decision within the generous ambit of their discretion. It may be that the Court would grant relief for the shareholder under section 994 or it may consider that the relief should be for the Second Defendant only or in some way alongside the relief sought by the Claimant as shareholder.

[49]Second, the form of relief in the petition should not be decisive. The petition as currently drafted refers to a purchase of the shares on the basis of its value prior to the alleged prejudicial conduct, but another approach may be first to provide to the Second Defendant redress and then any buy out. The formulation in the petition is subject in the usual way to “further or other relief”. In any event, the alternative of a remedy of an account to or compensation in favour the Second Defendant should still be available depending on what is the just way to proceed.

[50]Third, the claims are defended. This means that the petition may fail on the ground that the allegations do not amount to unfairly prejudicial conduct or that there is some bar to the exercise of discretion to obtain relief under section 994. If that is the case, the Claimant still wishes to air his grievances on behalf of the company. A claimant is not required to make an election. At this stage, even if the petition were the primary relief, he would be entitled to have a fallback position on the same allegations rather than have them die on the vine.

[51]Fourth, it might be said that the claims could have been brought all in the petition, but this might have been challenged in the instant case, as turns out to be the case. It is also possible to bring the claims in two actions. It is then a matter of case management to ensure that the case proceeds in the most efficient and economical manner thereafter.

Discussion

[52]The Court has been greatly assisted by the legal submissions of Counsel both made orally and in writing and supplemented by short skeletons on a point requested by the Court.

[53]There are substantial witness statements, three by the Claimant, and three by the First Defendant. There is other evidence. They set out the positions of the parties in detail and both cases have some cogency. In the event that there was no evidence before the Court in response to the Claimant’s case, the Claimant’s case would succeed. On the basis of the evidence as a whole placed before the Court, there is at least a prima facie case which is raised. There has not been equated the lower test of a seriously arguable case with a prima facie case. There has been applied the test in Abouraya v Sigmund above. Whilst bearing in mind the quotation above from para. 79 of Iesini that something more than a prima facie case is required, each case has to be seen in its context. There is no mechanistic test and each yields to the facts of the instant case.

[54]The First Defendant did not in written submissions set out in detail the answer to the claim or make detailed submissions as to the merits of the case. In oral submissions, the Court was taken to a number of documents particularly about the proceedings in Ireland. The submission of the Claimant is that the dispute in Ireland is irrelevant to the proceedings because it is about a different company from the Second Defendant. It is not accepted that the dispute in Ireland about MIL is irrelevant background. It is background to the dispute in this jurisdiction, and it is likely to feature in the evaluation of the merits of the dispute in this jurisdiction. Nevertheless, the Court is not in a position to evaluate the dispute in Ireland, let alone to assess how it may impact on the proceedings relating to the Second Defendant in this jurisdiction.

[55]It is noted that the allegation about the transfer of a 95% shareholding to the control of the Claimant is challenged in correspondence. The Claimant accepted by a letter of Fieldfisher Ireland in a letter dated 21 November 2023 that the shareholdings are 50% each, ignoring for this purpose the extent to which shares are held through limited companies. Further, as noted above, the suggestion that the allegations in the UK are in retaliation for the allegations in Ireland is challenged by reference to chronology. The responses to the allegations relating to the dividend and allegations about misappropriation were due to be filed at some time after the oral hearing in this case, and so the Court does not have the responses of the Claimant to the detailed allegations made by the Defendant in Ireland.

[56]It may be the case that the way in which the allegations have been made in this jurisdiction is to ask questions which cannot be answered satisfactorily because of the absence of adequate records available to the Claimant. The First Defendant has a forensic report (at para. 3.5) which has said that it has not been possible to provide information due to documents not being available to her, whereas the Claimants says that the First Defendant has access to the statements. The Court is not in a position to evaluate whether the First Defendant does not have adequate records as she submits or whether this is a strategy to evade her responsibility to account as the Claimant submits.

[57]It has not been submitted that the derivative claim is susceptible to a strike out application. A mini-trial at this stage would be inappropriate and might in the end be of no utility because nothing short of a trial would be capable of enabling the Court to consider not only the matters in dispute in this jurisdiction, but to view the matter holistically particularly against the background in Ireland. Having considered all the relevant evidence before the Court, I am satisfied that there is at least a prima facie case and that in the circumstances of this case, that suffices bearing in mind the other matters to which I have regard in the exercise of the discretion as to whether to give permission. Having reached this judgment that the merits threshold is satisfied for the permission stage, it is not possible at this stage to infer that the Claimant does not believe in the case or that he is otherwise not acting in good faith.

[58]It is said that since there is an almost complete overlap of the shareholder claim and the derivative claim and that therefore they should not both be allowed to proceed. Whilst there is an overlap, it does not follow that no point would be served in allowing both to proceed. It is not inevitable that they stand and fall together. There is the possibility that the shareholder claim which depends on findings of unfair prejudice and the exercise of a discretion as to whether to award the relief may fail, whilst at the same time the Court may be prepared to give relief in the derivative claim. For example, if there was wrongdoing in both Ireland and in this jurisdiction, the Court might consider not giving relief in the shareholder action but restoring to the Second Defendant that which may be due to it. There is no benefit in drilling down to more detailed hypothetical scenarios. As stated in Cullen, it is a conventional precautionary response to the risk that the company and not the shareholder may be entitled to relief to issue derivative proceedings.

[59]Further, whilst the overlapping nature of the proceedings may be a point against permission, it also gives rise to a point in favour of exercising the discretion to grant permission. It is that the derivative claim adds very little to the burden of litigation, a point also noted in Cullen. As a matter of case management, the two claims can be managed so as to reduce any work so that the two claims can move together to a resolution at the same trial.

[60]There is a need for case management to decide how to proceed with the two claims. It might be that the two claims should proceed together such that all of the issues are to be decided at the same trial. This need for case management is referred to in Kimionis at para. 55(v) in a part of the judgment which may require consideration in that context. There is to be a case and costs management conference (“CCMC”) in any event on 27 June 2025, although there is an application for the this to be vacated and to be relisted on the first available date after 1 November 2025. Whenever the CCMC comes on, and depending on the issues in dispute at the time, consideration should be given to case management of both actions being heard at the same time or some other direction as may seem appropriate.

[61]It remains to consider the four points set out at paras. 44 – 47 above made by the First Defendant in resisting permission. The numbered points will be answered point by point.

[62]First, it would be reasonable for a director to wish to support a derivative claim because they would not wish the Second Defendant’s interests to be ignored particularly to avoid the risk of injustice having regard to the consideration referred to in Cullen. This is particularly so when reminding oneself that it suffices if it is a reasonable decision for one director even if another director may take a different reasonable decision on the same facts.

[63]Second, it does not follow from the fact that it may not be an abuse of process to include relief of the company in an unfair prejudice petition that it is an abuse of process to have a derivative claim. This is inferred from the quotations above from the case of Kimionis.

[64]Third, for the same reason, the derivative claim is not pointless. Even if a significant motivation at the inception of the derivative claim was to seek an indemnity, it does not follow that the withdrawal of the claim to an indemnity removes the justification for the claim for the same reasons as above about the alternative scenario. Relief is still sought for the company with concerns about financial, reputational and regulatory harm.

[65]Fourth, the points made about alleged bad faith pre-judge the outcome of the trial which cannot be determined at this stage. A mini-trial is to be avoided, and it is not apparent that a mini-trial would have led to an ability without a full trial as to whether these points were well made or not.

[66]Returning to the appropriate test for bringing proceedings for a derivative action having regard to section 172 of the Companies Act 2006 and the test at section 263(2)(a) and 263(2)(b) referred to above, it is whether a hypothetical, independent board would consider it consistent with its duty under section 172 to continue the proceedings.

[67]In this context, the hypothetical board must take into account factors including the company’s employees, the company’s creditors and the business reputation of the company. The factors relevant here, which might lead to the emphasis being not simply a dispute between the shareholders, but a dispute involving matters requiring protection for the Second Defendant. They include the following:(1) restoring diverted business (if the allegation is upheld);

(2) supporting foreign workers through its CoS licence and vulnerable recipients of home care (if the allegation about the CoS licence is upheld). These workers are sponsored to live in the UK and provide important services to local authorities and the National Health Service. Further, there is a subsidiary concern, namely Care Direct (Salford) Limited which is said to have about 30 employees, caring for individuals in the community who are reliant on the CoS licence;

(3) protecting potential third party creditors such as HMRC (if they are creditors as such which is the concern having regard to overdue accounts and the allegation of money not accounted for): the First Defendant in her first witness statement at para. 39 referred to the Second Defendant as being “worth very little, if not being borderline insolvent”. Draft accounts as of 30 September 2022 show a net asset deficiency of £222,219. It is said in a witness statement in support of the derivative claim at para. 16 that in fact the net asset deficiency is greater because there is not recorded in the draft accounts a sum of over £1,053,730 paid by MIL to the Second Defendant. There is a letter from HMRC dated 28 January 2025 about the possibility of striking the Second Defendant which has not filed its tax returns. This has led to accounts now being re-drawn.

[68]These are factors relevant to the hypothetical director or board in considering whether to bring an action in the name of the Second Defendant, namely to protect the position of creditors and employees especially by restoring assets to the Second Defendant.

[69]I reject the submission that the reasoning in Cullen of the derivative action being capable of being a precaution against injustice no longer applies. It is right that there have been a number of cases where relief is granted in a petition in favour of the company prior to Kimionis. These have included cases cited by the First Defendant including Sikorski v Sikorski

[2012] EWHC 1613

(Ch) and Re Weir Travel Ltd [2021] NICh 18 and see also Hollington at para. 8-21. Nevertheless, the possibility of obtaining relief through the section 994 petition does not have as its corollary that the derivative claim is ipso facto an abuse of process or one in respect of which permission should not be granted. Likewise, it does not follow that the reasoning in Cullen has been overtaken by the recognition of the availability of section 994 petition for relief by a company.

[70]Each case involves an exercise of discretion on its own facts. For all the above reasons, this is a case in which a hypothetical board of directors would reasonably take into account and would reasonably lead it to continue this action. Whilst it is a relevant factor that relief might have been sought in the petition, it is far from a conclusive factor. I am satisfied that the overall justice of the case is such that the derivative action ought to be allowed to continue, subject to case management directions.

[71]A particular matter in which weight is attached in the exercise of the discretion (whether to permit the derivative action to continue) is the issue of the personal liability of the Claimant for his costs. He has clarified in his skeleton argument that he refers both to the costs of the Claimant being paid by himself without recourse to an indemnity from the Second Defendant and to meeting any costs ordered against the Second Defendant (if that were ever to happen). This clarification, which appears at paras. 78-79 of the Claimant’s skeleton argument, should be confirmed in the order and made as a condition of the permission for the derivative claim to proceed.

Disposal

[72]Viewing these points as a whole, this is a case management decision with the Court having a wide ambit of discretion. Having considered all the relevant evidence before the Court and the relevant factors, in my judgment, it is appropriate to exercise the discretion in favour of giving permission. Following from the observations above about case management, it is of importance that there are directions which are made in order to minimise the additional costs of having two related claims. The parties are asked to cooperate with a view to providing draft directions designed to achieve this objective. The alternative of the Claimant formulating an amendment to the petition to incorporate a claim for the benefit of the company is unduly cumbersome once it is recognised as reasonable to have both the claim for the buy-out and/or the claim for relief for the benefit of the company.

[73]For all of the above reasons, permission is granted for the continuation of the derivative action.