Jason Ratcliffe Atherton v Mark Ratcliffe Atherton & Ors [2025] EWHC 3229 (Ch)

[2025] EWHC 3229 (Ch)Case No CR-2024-006378
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
INSOLVENCY AND COMPANIES LIST (ChD)
Case No CR-2023-006540
RE: KEY PEOPLE LIMITED (CRN.02578067)
RE: JUST RECRUIT GROUP LIMITED (CRN.07222010)
AND RE: THE COMPANIES ACT 2006
Venue Royal Courts of Justice Rolls Building, Fetter Lane London EC4A 1NLDate 10 December 2025
Before
ICC JUDGE PRENTIS
Between
JASON RATCLIFFE ATHERTONClaimantMARK RATCLIFFE ATHERTONDefendantsELAINE CONNOLLY and LOUISE DONOVANDefendant(as the Personal Representatives ofDefendantPaul Martin Donovan, deceased)DefendantAnd between:

ICC JUDGE PRENTIS:

[1]JASON RATCLIFFE ATHERTON[2]SCOTT McEWAN NETO[3]LOUISE NETO Petitioners -and-[1]NORMAN MICHAEL FREED[2]MARK RATCLIFFE ATHERTON[3]ELAINE CONNOLLY and LOUISE DONOVAN (as the Personal Representatives of Paul Martin Donovan, deceased)[4]HOLLY THOMPSON[5]ACHIEVA GROUP LIMITED (CRN. 12867056)[6]KEY PEOPLE LIMITED[7]CMC INVESTMENTS LIMITED (CRN.12813661)[8]ACHIEVA LIMITED (CRN.13538895)[9]JUST RECRUIT GROUP LIMITED Respondents - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - James Taylor (of CANDEY) for the Claimant and the Petitioners Andrew Carter (instructed by Longmores Solicitors LLP) for the Fourth Respondent Hearing dates: 10, 13-15 October 2025 - - - - - - - - - - - - - - - - - - - - - JUDGMENT ------------------------- ICC JUDGE PRENTIS: Introduction[1]Just Recruit Group Limited (“JRG”) and Key People Limited (“KP”, sometimes in quotations “KPL”) operated within the recruitment industry, JRG being a subsidiary of KP. This is the trial of the claim of Jason Atherton (“Mr Atherton”) to a 20% shareholding or its equivalent value in KP (the “Claim”), and of the unfair prejudice petition brought by himself, and Scott Neto (“Mr Neto”) and his wife Louise (“Mrs Neto”), in respect of the conduct of the affairs of JRG (the “Petition”). Appearances and status[2]Of the defendants or respondents only Holly Thompson (“Ms Thompson”) has been represented at trial.[3]Norman Freed (“Mr Freed”) was present on the first morning. He told the court that he had been made bankrupt on his own petition on 30 August 2024; was now discharged; and that having taken advice from his trustee he did not wish to participate: and he didn’t.[4]His nephew, Freddie Freed, was also in attendance then, on behalf of Achieva Limited (“Achieva”), of which he and a Corrine Curtis are the directors. Reading from a script, he said that neither he nor Ms Curtis had been a director of JRG, and that as Achieva was only incorporated on 29 July 2021, after what he considered the relevant events in the Petition, the claims against it ought to be dismissed. Although told that the court would hear him in closing as well, that was his only appearance. It did not encompass other parties of which he is a director: KP, of which he has since 31 December 2022 been sole director; and Achieva Group Limited (“Achieva Group”) of which again he and Ms Curtis are the directors.[5]The Claim, issued on 20 November 2023, and the Petition, presented on 1 December 2023, have proceeded together since the order of Chief ICC Judge Briggs of 5 March 2025. This trial has been listed pursuant to that order, the Petition as to liability only. On the Claim, on 31 January 2024 judgment in default was obtained against both defendants, with damages to be assessed. Mark Atherton, uncle of Mr Atherton, had that against him set aside on 11 June 2024. Elaine Connolly and Louise Donovan (the “PRs”) made no similar application, and have taken no steps in the Petition either. They have in correspondence indicated that the estate of Paul Donovan (“Mr Donovan”) is insolvent. Neither Mark Atherton nor the PRs have appeared at trial.[6]There is no debarring order against any respondent. In February 2024 all the respondents except the PRs filed points of defence, those of Mr Freed and CMC Investments Limited (“CMC”) being identical, the others’ virtually so. Within the Claim, Mark Atherton’s defence was settled by the same counsel who provided his amended points of defence within the Petition; and those are independent, rather than derivative, documents. But there is no witness evidence from anyone but Ms Thompson, and hers arrived only in the week before trial. Sensibly, there was no objection to its admission from Mr Taylor, who has appeared for Mr Atherton and the Netos; nor from Mr Carter, for Ms Thompson, to a corresponding application from them to admit late evidence.[7]Achieva is the only corporate respondent which remains active, albeit its last filed accounts, to 31 December 2024, show net current liabilities and a balance sheet negative in excess of £1.6m. From incorporation its members have been Freddie Freed and Corrine Curtis, and they have been its directors together with, until 31 December 2022, Mr Freed.[8]Achieva Group has been in administration since 3 July 2024, the administrators being appointed under a qualifying floating charge by Bibby Financial Services Limited (“Bibby”).[9]CMC entered creditors’ voluntary liquidation on 31 May 2024. A final meeting was called on 1 July 2025. By my order of 11 September 2025 its dissolution has been deferred to 26 February 2026. Mr Freed had been a director since 30 October 2020, and was sole director from 9 March 2021 when his nephew Moshe Freed was removed.[10]JRG entered administration on 29 January 2021 by its sole director, Mr Freed. A notice of move to dissolution was filed on 26 November 2024. By order of Deputy ICC Judge Schaffer of 5 February 2025, this was deferred to 26 February 2026.[11]KP entered creditors’ voluntary liquidation on 30 May 2024. From 31 December 2022 its sole director has been Freddie Freed. Its statement of affairs disclosed no assets and a single liability, of £154,606 to HMRC.[12]Mr Taylor reassured the court that the relevant permissions to continue had been obtained. For this liability trial the current status of any respondent will be treated as immaterial, save insofar as its entry into that insolvency process is of import.

Facts and findings

[13]As indicated at the outset to the parties, central to this trial are not the totteringly top-heavy points and particulars of claim, presenting many dozens of apparently theoretical further or alternative cases, but their foundations: the facts. The relevant law and pleadings can be addressed in their light. While there has only been a formal appearance from Ms Thompson, it is still for Mr Atherton to prove the Claim, and he and the Netos the Petition, including, on a balance of probabilities, the facts which constitute them.[14]KP was incorporated on 30 January 1991. In an unfair prejudice petition presented on 14 June 2021 to which the respondents are Mr Freed, CMC, Ms Thompson, Achieva Group and KP itself (the “Donovan Petition”), Mr Donovan says that was as a vehicle for himself and Mark Atherton to carry on business as a recruitment agency; and that from an early date they each had a half share. Mr Donovan died nine months after presentation of his petition, on 16 March 2022; there has been very limited progress on it since, and it is not clear when, if ever, it will come to trial. Mr Freed was defending it, and denied its complaints, which included unfair prejudice in Mr Donovan’s removal as a director on 21 September 2020, the removal being contrived by Mr Freed; and, as with the Petition, allegations that Mr Freed knowingly made misleading accounting entries to misrepresent the companies’ true financial position and cause or aid diversion of their business.[15]Mr Donovan’s account of why KP was incorporated tallies with Mr Atherton’s evidence that KP had been founded by Mr Donovan and Mark Atherton in 1991, and that at the time he joined KP in 2001 they were 50:50 shareholders.[16]While that was Mr Atherton’s impression of the shareholdings, it was inaccurate.[17]By 30 January 1999 Mark Atherton and Mr Donovan held 45 of the 100 issued shares each, one Anthony Davis holding the other 10.[18]On 21 April 1999 the authorised share capital was increased to 200 £1 ordinary shares; and by 30 January 2000 Mark Atherton and Mr Donovan held 85 of the 200 issued shares each, Mr Davis his 10, with a Duncan Lowthian and a Christopher Rose also holding 10 each.[19]In an event of considerable significance to the Claim, on 14 February 2000 KP’s articles, which were essentially the 1985 Table A, were amended to add by a new article 6 pre-emption provisions which applied to every member.[20]In another significant event, when they were further amended on 12 June 2014, those remained.[21]The Claim ignores entirely the pre-emption provisions. So does Mr Atherton’s evidence. It may be assumed he knew nothing of them; but the other shareholders certainly did.[22]Over the next few years KP bought back the small shareholdings: those of Mr Lowthian and Mr Rose on 22 December 2004; Mr Davis’s on 28 March 2005. On that, Mark Atherton and Mr Donovan were again 50:50 shareholders.[23]Mr Atherton had joined the Royal Marines in 1993 after A-levels. On leave in early 2001 his uncle, Mark Atherton, perhaps at his instigation, invited him to join KP. “I spoke to him for a while about this and in April 2001 I left the Marines and joined KP”. He trained by working for Michael Page for 3 months, rejoining KP in September 2001 as a sales consultant in the IT recruitment team, focussing on business development. In the aftermath of the millennium bug it was a difficult sector, and in the period to 2003 KP “got rid of most of the people, including Chris Rose, Tony Davis and Simon Claridge, all of whom (I understood) had been promised a 5% shareholding in KP”.[24]This is more than 20 years ago, but Companies House shows Mr Rose and Mr Davis to have become 5% shareholders, as well as the unmentioned Mr Lowthian. Mr Atherton’s recollection, put in its non-definitive terms, is by itself an inconclusive guide to the history.[25]In 2003 Mr Atherton set up a new team at KP, Occupational Health, which he ran until 2008 by when he says it was “the most profitable part of the business”. In “around 2007” his uncle had also asked him to run the Health and Safety team as well, which he did; and in “around late 2008/ early 2009”, in place of the Occupational Health account, Mark Atherton asked him to take over the General Electric account, for which annual turnover was £6-700,000. “Also around this time, I was promoted to Sales Director of the Pharmaceutical team with general supervision over the rest of KPL for sales and performance. In that new role I was also involved in all the annual reviews, sales and staff hires”, although “I was never involved in the financial side of the business”.[26]Mr Atherton remained, though, an employee of KP: he did not become a director until 12 May 2011. His roles were altering at the behest of his uncle, and presumably the rest of the KP board. His only written employment contract was that of 20 April 2009, which records his employment commencing on 2 July 2001, and gives him a £50,000pa “basic salary” plus commission and bonuses. His becoming a director did not alter the terms of his employment; and when in October 2018 he was removed from the business, his claim to the Employment Tribunal relied on his April 2009 employment contract.[27]The initial promises of a shareholding in KP, which do not find their way into the Claim, are those from “around 2006-2007” to 2010. In his evidence, Mr Atherton wraps them into those later, on which he does rely. “From around 2006-2007, I had had various conversations with Mark when he told me I would get a 20% shareholding in KPL. They offered me shares because they did no real work… I was succession planning, and they wanted to keep me. I worked 10-hour days and often worked on weekends… They needed me because they had no other options to run and maintain the company. I set up the [Occupational Health] team entirely on my own and provided a consistent and profitable revenue stream. Mark told me that I would be given the 20% shareholding because I was taking on a greater role at KPL. The shares were therefore to reward me and keep me engaged. In hindsight, it was used to control me. Mark always promised me things, but they would take a long time to materialise. For example, I was promised to be made a director and given the title, but it was not formalised at Companies House until 2011. But I trusted Mark (as he was my uncle) and relied on his repeated reassurances that I would be given this shareholding. That was always the incentive for me from that time onwards. We would have these conversations both in the KPL offices… and informally when I used to see him at family events with my dad. We had the same conversations once I became a director in 2011”.[28]That is an important piece of evidence. It deals with matters a long time ago, which were never actioned. Notably, it does not identify any certain agreement that Mr Atherton would receive 20% of the shares in KP. Nor does it say from whom these shares were to come, or, if they were to keep him engaged, whether they were to vest immediately or, as one may imagine if they were to bind him in, be subject to terms. His ongoing engagement is one of three reasons proffered for their apparent donation, the others being for his work past, the “reward”; and for his work future, the “succession planning”. Mr Atherton does not explain what he means by the last. If it is the same point as ensuring he remain with the company, it is not linked to any evidence that at this point, little as whoever the “they” is did, there was an intention that they step aside and he take over the running. If it is “succession” as in inheritance, it could apply only to Mark Atherton: Mr Donovan had his own family.[29]It follows that no meaningful weight can be placed on Mr Atherton’s statement that he “relied on” his uncle’s “repeated reassurances”: on what, exactly, was he relying? What exactly did he take these reassurances to mean? How exactly did they alter his behaviour?[30]Significantly, his evidence also fails entirely to engage with the other benefits he was deriving from his hard work: he was an employee: he was already being rewarded for that work, by salary and the additional sums; handsomely, it would appear.[31]On 31 March 2008, a date encircled by the promises of a 20% shareholding to Mr Atherton, his uncle and Mr Donovan each transferred 17 of their shares to Free Dimension Consulting Limited (“Free Dimension”), making it, with its 34 shares, a 20% shareholder, and they, with their 68 each, 40%. Free Dimension was incorporated in the BVI. Mr Atherton says that it was “one of Norman’s companies” (Mr Donovan says the same in his petition- “owned and controlled” by Mr Freed- although Mr Freed there contests it), and that he “didn’t think much about [the transfers] and I was not involved in any discussion… I trusted Mark to do the right thing”. No doubt had there been an agreement in his favour at that point, then he would have raised the matter.[32]From the time of that transfer any overriding of the pre-emption rights was not a matter for Mark Atherton and Mr Donovan only.[33]Mr Freed was the accountant to KP. He and Mark Atherton were, says Mr Atherton, “close friends although they fell out at various times. They had worked together in business for decades and used to own petrol stations together”. Mark Atherton’s stepdaughter, Ms Thompson, who lived with him over most of the relevant time and joined KP in 2003 as an administrative junior, said in cross-examination that “I trusted Norman as someone I’ve known the majority of my life”.[34]That close relationship was extended, as Mr Freed’s brother, Mark, provided tax advice to Mark Atherton and Mr Donovan. The lack of clarity over the ownership of Free Dimension may be deliberate: Mr Freed’s defence to Mr Donovan’s petition states that it was owned by Mark Freed, and was a tax avoidance device for the benefit of Mark Atherton and Mr Donovan. As remarked, neither Mr Donovan nor Mr Atherton see it that way, and in assessing his case there is no reason to go behind the latter’s opinion; the more so as his view of the ownership of Free Dimension is formed in the knowledge of the existence of tax avoidance schemes:
“Over time I became aware that [Mark Atherton] had set up a trust structure with Norman Freed and his brother Mark Freed, as a way of taking money from the business as tax efficiently as possible. Mark mentioned on occasions that he set up various trusts and offshore companies”
. Mr Atherton does not complete that chain by identifying Free Dimension as an alter ego for his uncle and Mr Donovan; and, indeed, neither does Mr Freed go so far in his defence.[35]Mr Freed was also joined in 2010 by his nephew, Moshe, son of Mark Freed, newly qualified as an accountant in Israel, and from then until 2013, when he “started to focus on my own business”, doing “mainly bookkeeping, and some accounts work”, with a view, Moshe Freed thought, to taking over from him when he retired.

The incorporation of JRG

[36]By 2010, as sales director running the Health and Safety team and with overall responsibility for Pharmaceutical and Healthcare, Mr Atherton had come to the view that for all its success KP was stagnant. His uncle was the chair, Mr Donovan the managing director “but they had very little day-to-day involvement, other than sitting in their office and drinking heavily most lunchtimes. I was generally responsible for the whole business in terms of sales”. There is a sense of self-aggrandisement here: elsewhere Mr Atherton describes his uncle as the one who “ran the business and made all the decisions”; and Mr Atherton says it was not until 2010 or 2011 that he had “any real interactions” with the accountant, Mr Freed. Mr Donovan “had to be told what to do, and he had no management skills”; but it was not Mr Atherton doing the telling.[37]Mr Atherton says elsewhere that his uncle “ran it as a lifestyle business… there was no interest in re-investment into the company or growing it to the point of sale, and there were frequent large payments to Mark and Paul. Holidays and home building works were all funded through the company. Mark took out as much money as he could from the business for himself and had no understanding of how the market was doing. Most days he would come to the office around 10am or 11am and go to the pub with Paul around lunchtime with various friends and staff, all paid for through the company. He would often get back to the office at 4pm or 4.30pm”; and that “Mark and Paul ran KPL like a lifestyle business and just took money from it whenever they liked… they used AMEX for many of their personal expenses. Mark… spent about £30,000 on his 50th birthday party that was funded by KPL. All his trips to see his daughter in Dubai, and all flights and expenses for his family were also paid through KPL, including his stepson’s wedding in Thailand. As far as I know, none of these personal expenses were repaid”.

and that

[38]So Mr Atherton perceived that unlike other firms in the pharmaceutical sector, KP “did not want to take any risk or make any investments”. It had “a large team and excellent relationships with its pharma clients”, but was held back by “past issues”. Its five senior consultants “could happily earn a lot of money… with no incentive to bring in new clients and grow”. Mr Atherton could “see there was a lot of potential”. So in “around late 2009/ early 2010” he talked to his uncle. “I had the idea of setting up another company (which would end up being JRG)… to be a competitor to KPL, with the idea that JRG could use KPL’s candidate database it had developed over the years but using it to generate more sales”.[39]Mark Atherton was “very open to the idea”, which originally involved the two of them splitting equally shares in a new company “without Paul’s involvement for the simple reason that Paul was unreliable”. A fortnight later they changed their minds, agreeing a split of 50% for KP and 50% for Mr Atherton, as the new venture needed to use KP’s database and as Paul was a 50% shareholder in KP and so had to be involved. (The 50% is an error, treated as such in Mr Taylor’s skeleton).[40]So on 13 April 2010 JRG was incorporated by Mr Atherton. As it was intended to be a parent of a group, on the same day he also incorporated Just Pharma Limited (“Just Pharma”) and Just OH Limited (“Just OH”), as the opcos within the relevant sectors. “The plan was to hire consultants by incentivising them with shares in the subsidiary company they worked for”. In each, Mr Atherton took the single initial £1 share. On the same day, he transferred his shares in Just Pharma and Just OH to JRG.[41]Given the supposed 50:50 agreement, what actually happened to the JRG shares on 13 April 2010 makes no sense. There was an allotment of a further 99 shares, resulting in each of Mark Atherton and Mr Donovan holding 38 shares, and Mr Atherton 24. No explanation is offered, although surely keeping Mr Atherton as a non-influential voting minority was intended. Surely, as well, the particular division through this allotment was deliberate; and agreed.[42]Stepping back, it is also very hard to see why the benefit to Mr Atherton of having this idea, and acting as the initial director of JRG, should be a 50% shareholding. He remained an employee of KP, remunerated by it and bound to dedicate his time to it. He provided neither capital, nor the database which was considered fundamental to the future trade of JRG or its subsidiary.[43]The account thus far of his 50% interest in his witness statement is therefore inherently implausible, and must be rejected.[44]Although, again, these are matters long ago and the precise timings probably do not matter, the Petition tells a different story; or, put another way, provides different recollections of Mr Atherton; which is not a point which assists him. It says that the 38: 38: 24 shareholdings were “in accordance with” the discussions Mr Atherton had with his uncle and Mr Donovan in around April to May 2010; which is indeed much the more likely.[45]It is then said that there were further discussions which “resulted in an agreement” between the three of them and KP (presumably as represented by its two directors) “that JRG would instead operate as a joint venture between Mr Atherton and KP” by which KP would provide the funding for JRG to commence trade; it would “initially hold 100% of the shares”; but once its funding had been repaid, 50% of the shares would be transferred to Mr Atherton; and “accordingly”, on 30 November 2010, all 100 shares were (as they were) transferred to KP (although Mr Atherton’s evidence has an April 2011 date for this). What Mr Atherton’s part of this joint venture was is not explained.[46]The Claim also relies on this agreement, which it describes as the “JRG Agreement” and says was reached “in or around July 2010”.[47]The Petition goes on to aver that in late June 2010 it was agreed with Mr Neto that he would lead a JRG subsidiary, in which he would receive a 25% shareholding; but acknowledges that this plan was “subsequently altered” as all- Mr Atherton, Mr Neto, Mark Atherton, Mr Donovan and KP- agreed that the business would not be carried on through a subsidiary, but through JRG itself; as it was. Although it filed dormant accounts to the year end 31 December 2010, it is stated that it commenced business in August 2010; at which point all “agreed and understood” that “Mr Neto would be granted a shareholding in JRG in the future to reflect his role in the business”.[48]It follows that on the Petition’s own terms, at the latest by the agreement that Mr Neto be a shareholder, any agreement that Mr Atherton would receive 50% of JRG as holding company was dead; and that, therefore, KP’s becoming sole shareholder through the transfers from Mr Atherton, Mark Atherton, and Mr Donovan on 30 November 2010 cannot have been subject to an agreement that on the fulfilment of the conditions by others Mr Atherton would take 50%; and that had he ever believed he was to have a 50% interest, he could no longer do so. (It may be observed that, again, this account cannot anyway be complete in itself: what if Mr Atherton had left KP?).[49]Further, Mr Atherton’s evidence, which he approved orally at trial, does not actually identify any agreement that KP would fund JRG’s start up costs; nor that on their repayment by JRG he would become a 50% shareholder in it. Instead he says that at the time when trade was still anticipated to be carried on through a subsidiary, KP would loan JRG “money to set it up”; and that “[w]e discussed that KPL and I would hold the shares 50/50”. However, as he states, JRG’s life as a holding company never commenced: “Mark later changed this because he didn’t want subsidiary companies”.[50]Mr Neto was approached because, as Mr Atherton says, “[w]e needed someone to run JRG. I was running KPL, and my sales were very important to the business so I couldn’t do it”. They did not know each other, but had heard of each other within the general “life sciences” field in which JRG was intended to operate, and which Mr Neto says is “very niche”. Both recollect that Mr Atherton emailed him, leading to an initial meeting which both place in around April 2010. Mr Atherton says that at the initial meeting “I set out… that he would get a shareholding”. Mr Neto does not refer to that, but recalls that “Jason said he would continue to work at KPL, but that he would liaise between KPL and the new company. We initially discussed the new company being called Just Pharma”. That was, in the event, JRG’s trading name, Just Pharma itself remaining dormant.[51]Not long after, says Mr Atherton, or in around May or June says Mr Neto, they met with Mark Atherton and Mr Donovan. This is what Mr Atherton recalls: “The idea was to start off focussing on the pharmaceutical side (which was Scott’s area) using the support and data from KPL. We discussed the long-term plan for Just Pharma at the meeting. The idea was that we would build it, grow it and then sell it. Scott talked about his family being in Australia and his father in Portugal and wasn’t sure where he would be in a few years’ time. We anticipated it would take 7 to 8 years until the company reached the point where it would have some real value; it was never a hard and fast 7 to 8 years- we would sell it when it would make financial sense”.[52]This is Mr Neto. “I remember we sat outside at a table and discussed the bigger picture, in terms of the growth plan for the company, my role and my shareholding and where this could end up. This was the first point that the idea of there being ‘an out’, as in a plan for exiting and selling the new company, was floated. I believe Mark made that suggestion. We talked generally about how long it takes to build up recruitment companies and that it takes about 7-8 years to get to a stage where there is a secure business that might become sellable”.[53]Mr Neto says he started at JRG in August 2010, although Mr Atherton gives the date September 2010. He says he had been offered a 25% shareholding in Just Pharma, the originally-proposed vehicle, and that “[i]t was discussed that Jason and KPL would be the other shareholders although I did not know any more details than that”; indeed, when he started “I did not know… what Jason’s agreement was in relation to JRG or KPL”. “In the end, it was agreed with Mark and Jason in or around 2011 that I would get 20% of JRG and any other businesses we formed… but JRG was the only operational company in terms of generating revenue, billing clients and so on”.[54]Mr Neto was “responsible for the day-to-day running… In fact, without me there would not have been a business because I was the only one who had experience in life sciences recruitment”. There were meetings with Mark Atherton and Mr Donovan “to discuss money, salary increases and the general performance of the business”, about once a year; aside which their “involvement was virtually zero”. Mr Atherton “would come and see me around every few weeks or so, sometimes more regularly”; and Mr Atherton agrees with that. The database from KP “did not happen”. “I was effectively a director of JRG from the beginning”, although not formally appointed until 19 November 2012, when he also received 20 shares from KP. He never had a written contract of employment, or service agreement.[55]Mr Atherton adds that he would prepare monthly performance figures for JRG, and a table of top billers; and while Mr Donovan, like Mark Atherton, had no input in its operations, he would at least “create a monthly rolling spreadsheet of new business”, which Mr Atherton would see. KP was, though, “in control of the financing and invoicing and had an admin office”; and loaned around £150,000 for JRG’s start-up costs, which were repaid in about 18 months.[56]I found Mr Neto’s evidence, written and oral, clear and direct. Unlike Mr Atherton, he never sought to improve his case by going beyond genuine recollection.[57]There is another glimpse of the early days and onwards of JRG from James Mortlock, who joined it in October 2010 as a “Pharmaceutical Resourcer”, and by his departure on 14 January 2021 “effectively ran [its] entire pharmaceutical division”. He now works for Mr Atherton and Mr Neto’s SJ Sourcing Ltd, but his evidence was direct and reliable. “Scott set up JRG and ran it on a daily basis… I did not see very much of Mark Atherton or Paul Donovan”. Simon Wright, also now at SJ Sourcing Ltd, and also giving reliable evidence, joined JRG in June 2014, leaving on 9 January 2021. He also recalled Mr Neto “running it on a daily basis”; “I did not have much (if any) contact” with the rest of the senior management team, Mr Atherton, Mark Atherton and Mr Donovan.[58]Mr Atherton says that Mr Neto received his 20% as “something Mark, Paul and I decided at one of our meetings”. “Mark and Paul suggested I should also have 20% which was not ideal. But it was seen as reasonable by everyone”. He does not explain why he perceived this transfer of 20% as “not ideal”, but perhaps it related back to his former visions of 50% of JRG as a holding company; or, it may be, to the 24% which had been issued to him in 2010. He continues:
“I was happy to accept a smaller shareholding” because “Mark had always reassured me that I was a 20% shareholder in KP”
. KP transferred Mr Atherton 20 JRG shares on 2 September 2013, after he had badgered his uncle “many times”.[59]Before looking at the post-2010 representations made to Mr Atherton concerning a shareholding in KP, the shareholder relationship in JRG must be considered.[60]As above, until the spring of 2010 Mr Atherton and Mr Neto were known to each other by name only. Mr Neto was then employed to run JRG, of which until 19 November 2012 Mr Atherton was sole director but, as anticipated at the outset, rarely involved because of his work as an employee of KP. Mark Atherton and Mr Donovan were appointed JRG directors on 31 January 2013. Mr Atherton says they did nothing, but Mr Neto is more nuanced: apart from an annual meeting “the first couple of years” their involvement “was virtually zero”; then, as JRG became more profitable, from around 2016 “Mark started to have more of a say in making decisions. My view at that time was that he chose to get involved unnecessarily in minor staff issues… He wanted to try to run JRG in the same way KPL was being run… Mark’s increased involvement was also becoming an issue for me because of his attitude and communication style. He would get Jason to deliver his messages to me… And in the 12 months prior to my being dismissed from JRG, he had started getting more and more involved in petty decisions. He’d gone from having no involvement whatsoever in the way JRG was run, to monitoring and micromanaging me”.[61]As to his relationship with Mr Atherton, Mr Neto says this: “I didn’t know Jason at the beginning, and we never spoke socially or informally. Our friendship grew the more time we spent together, although throughout the entirety of the time I worked at JRG, we didn’t once go out with each other socially outside work. It was a working relationship”.[62]Mr Atherton agrees: “Our relationship was purely business. We didn’t socialise or speak outside work”.[63]Legal concepts are a matter for the pleader, whether of the Petition or the Claim (not Mr Taylor, although neither when pressed did he resile from any of their contents). The facts, though, are within the knowledge of the relevant party; from whom (or, here, for whom) there is a statement of truth.[64]As is acknowledged in the Petition, “[m]ost communication was oral” in respect of JRG. It is also said that the “agreements and understandings” concerning that company between Mr Atherton, his uncle, Mr Donovan, Mr Neto and KP “were never reduced to writing”, although that is not quite right: indirectly, Mr Atherton had his employment contract with KP which covered his work at JRG; and directly, for Mr Atherton, Mr Neto and KP as shareholders JRG had its articles. In the Petition Mr Atherton and Mr Neto aver that the elements which are defined as the “Agreement” they are “unable to particularise further due to the passage of time”: an acknowledgement of their incomplete memories.[65]The Agreement derives from the period up to Mr Neto’s joining JRG. It is said to arise between KP, Mr Atherton and Mr Neto, and has three elements.[66]First, “Mr Atherton and Mr Neto would be responsible for the management of JRG’s business and continue to participate in it”. That is nowhere in the witness evidence. There is evidence that Mr Neto was employed to manage JRG, and did. What is meant by continued participation is unclear: it is most unlikely to be an obligation come what may(a) on them to remain at or engaged with JRG; or(b) on KP not to remove them. So, it is not apparent whether and if so how it is said to alter the parties’ other rights.[67]Second is that “Mr Atherton and Mr Neto would each be granted a shareholding in JRG at a future date once KPL’s initial investment had been repaid and JRG was operating profitably”. Neither of them gives that evidence, although it is what happened. There is no necessary link between the profitable trading of JRG and the transfer of shares in it to Mr Atherton and Mr Neto.[68]Third is that “JRG would be sold at an appropriate future date, likely to be after approximately 8 years of trading”. The evidence does not establish any obligation to sell, whatever the time scale. There was an anticipation- an “idea” said Mr Atherton, a “plan” said Mr Neto- that JRG would be sold; and that would be when it made financial sense: a very broad proposition indeed, though surely taking into account any actuated desire of Mr Neto to relocate, should he still be at JRG, and the financial needs and desires of all shareholders.[69]No element of the Agreement is therefore established.[70]The third element becomes part of another defined term in the Petition, the “Exit Plan”. This is one of an unhappily large number of occasions in the Petition and the Claim when “and/ or” is used inappropriately, some sort of nineteenth century pleader’s tic. Here it is said that “Mr Neto and/ or Mr Atherton each became a shareholder in JRG on the following basis”, which is then described, applying to both and not one or the other, as having been “agreed and understood” between them, and KP, and Mark Atherton and Mr Donovan “from mid-2010 and repeatedly re-asserted during their discussions over the following years”.[71]The first element is a variant of the first part of the Agreement, that they “would each continue to participate in the management of JRG”, and fails for the same reasons.[72]The second, the variant to the Agreement, is that “JRG would continue to build its business with a view to it being sold at an appropriate point in the future, likely to be after approximately 8 years from when it had commenced trading in August 2010, namely mid to late 2018”. The language here, “with a view”, is more qualified than the earlier iteration, and accords with the evidence.[73]As the two elements are expressed as cumulative, the “Exit Plan” itself is not established.[74]The Petitioners also rely on what are called “together” the “Understandings”, although the second and third are further or alternatives.[75]The first avers a “relationship of mutual trust and confidence… between Mr Atherton, Mr Neto and KPL represented and controlled at all material times by Mr Mark Atherton and Mr Donovan who were also directors of JRG. Accordingly, Mr Mark Atherton, Mr Donovan were parties to that relationship of mutual trust and confidence”.[76]The second states: “JRG was a ‘quasi-partnership’ company”.[77]No particulars are given of either plea. It is not even clear if the relationship of mutual trust and confidence is said to have inured before 31 January 2013, when Mark Atherton and Mr Donovan became directors of JRG; or if those events affected when or between whom JRG became a quasi-partnership. Particulars are here required.[78]What can be said with confidence is that these bare pleas are on the evidence without foundation. Mr Taylor referred to Lord Wilberforce’s classic description of the recognition of equitable rights and quasi-partnership in Ebrahimi v Westbourne Galleries Ltd [1973] AC 360 and ticked off the “small company”, with its qualification that that is “[c]ertainly… not enough” by itself; the business being carried on “on the basis of a personal relationship, involving mutual confidence”; “an agreement, or understanding that all, of some… of the shareholders shall participate in the conduct of the business”; and the restriction on the transfer of shares. But aside from the size of the company, and the consequent practical difficulty in any share transfer, at least to an outsider, (although, in contradistinction to the KP articles, JRG’s contained no pre-emption rights), none of these applies. Mr Neto’s relationship with the others was purely business. He had been hired to do a job. That he did so without a written employment agreement may possibly bespeak a certain belief or, as Mr Taylor suggested, trust that he would be alright without, but does not attest to any special relationship. Mr Atherton too, albeit a director of JRG, was remunerated and performing as an employee of KP. Mark Atherton and Mr Donovan were his bosses: able to direct him to raise matters with Mr Neto; able to withdraw funds when they liked, and go to the pub when they liked. Mr Atherton was the hired hand, not the master; and that he was doing the grunt work, and not his masters, though for their benefit, is a complaint of workers over millennia. Mr Atherton was not their equal, even if there were oral references to this being a “partnership”: as a further example, although involved in the decision to award Mr Neto his minority holding, he could not at the same time ensure the transfer of his own minority holding from KP. It is also a weighty fact that, unlike the masters, neither he nor Mr Neto had invested any capital in JRG or the business; nor were they expected to.[79]The third element is that “The Petitioners, alternatively Mr Atherton and Mr Neto, and KPL owed equitable obligations and/ or understandings between them”. It is put that way because on 3 November 2016 and pursuant to tax advice Mr Neto transferred 10 of his 20 JRG shares to his wife who otherwise played no part in the business. There were two such obligations/ understandings. The second is that they would all “work towards and implement the Exit Plan”. That fails for earlier reasons. The first is that: “Mr Atherton and Mr Neto would participate in management for as long as, in the case of Mr Atherton, he held shares in JRG and, in the case of Mr Neto, for as long as he and/ or Mrs Neto held shares in JRG. KPL would do nothing to exclude Mr Atherton and Mr Neto from participation in management and Mr Mark Atherton and Mr Donovan would not procure KPL to do anything to exclude Mr Atherton and Mr Neto from participation in management”.[80]There is no evidence from either Mr Atherton or Mr Neto to support those notably unexceptioned propositions. Nowhere do they say that their acquiring their minority holdings in JRG varied their employment agreements, or JRG’s articles, to render them irremoveable. Nor do they say that, as on one face the first proposition states, they were bound not to resign while shareholders.[81]No element of the Understandings is established.

Mr Atherton’s claims to a KP shareholding

[82]We move onto the post-2010 representations made to Mr Atherton about a shareholding in KP.[83]As above, he had had “various conversations with Mark” from “around 2006-2007… when he told me I would get a 20% shareholding”. Next: “I had a couple of meetings in Norman’s and Mark’s offices in 2011 to specifically discuss my shares. I was told they couldn’t just give me the shareholding. They told me they would give me my 20% when KPL was sold, or if they could find a way to avoid tax liabilities. As time went on, whilst our discussions were that I was already effectively a 20% shareholder, they said they would look at how best to give it to me”.[84]Hence, there was no agreement at that stage. Underlined can be that it is unclear who is giving what shares comprising the 20%, or when. The who is itself ambiguous: it appears to be Mr Freed and Mark Atherton; and Mr Freed could perhaps be representing Free Dimension, although Mr Atherton does not explain that, nor why Mr Donovan would not be contributing. The 20% on sale is also curious: why would Mr Atherton receive shares on sale of the company? If succession were the purpose, this is its antithesis.[85]There is then this evidence. “I remember two further meetings when my 20% shares were discussed. I think the first meeting was in early 2011 on the third floor of Norman’s office with me, Mark, Norman, Paul and Mark Freed (Norman’s brother). Mark had discussed with Mark Freed (who was an international tax adviser) the fact that they wanted to give me a 20% shareholding in KPL and asked if he could look at the best way to do that. It was a fairly short meeting as Mark said he would need to go away and look at how it could be done to minimise any tax implications. He was based in Switzerland and said he would discuss options on his next visit”.[86]It may be supposed that this is a less-generalised account of the first of the “couple of meetings… in 2011”; and that is how Mr Taylor’s chronology treats it. There remains the ambiguity of from where any 20% interest was coming, though here it is not associated with the sale of KP. As it says, there was no agreement because Mark Freed’s advice was awaited; and perhaps the identity of the donor/s or issuer was to await that.[87]Mr Atherton continues: “The second meeting was perhaps two or three months later with Norman, Mark and Mark Freed (I can’t remember if Paul was present). Mark proposed a couple of options that would make it tax efficient. He said that because KPL was profitable, I would have a tax liability if I was simply given 20%. The two options he suggested were that the shares could be put into a pension which would negate the personal tax liability, or a second option would be that we could construct a dispute between the company and me, and then the shares could in some way be granted as part of a dispute resolution. Mark said he would consider both options. After a few weeks, Mark spoke to me and suggested that both options were not realistic and that essentially, they would give me 20% of the company at the point of any sale. At this point I was fully engaged with KPL, so I did not have a problem with it. I was doing well, I was getting paid well, and I trusted that they would stick to their word”.[88]It follows that there was to be no immediate donation of shares from anyone; but that whoever the “they” is would give Mr Atherton “20% of the company”, whatever is meant by that, “at the point of any sale”, whatever is meant by that. As before, no other terms are mentioned, in particular basic issues, surely resolved at the time, about what Mr Atherton was to do for this holding in the meantime; and whether he was to receive it even if he no longer worked for it. It is also apparent that Mark Atherton at the least was concerned about the tax implications, and what the donor/s would lose thereby, which required resolution to his satisfaction.[89]Agglomerated with this are the representations as to these shares: post-2011 “our” (unidentified) “discussions were that I was already effectively a 20% shareholder”; his uncle’s “repeated reassurances that I would be given this shareholding”, also referred to at family events, and his having “always reassured me that I was a 20% shareholder in KP”, so that Mr Atherton was “happy” to accept the 20% in JRG; and after that donation in September 2013, “Mark also continued to use the words ‘in reality’ and ‘essentially’ to describe my 20% shareholdings in KPL. I continued to think and trust that Mark would make good on his word”; and then: “At one point in 2016, Mark, Paul and I were sitting in their office at KPL… and Mark said you’ll get 20% as long as you’re working here. This meant I could not leave and be entitled to my shareholding in KPL. I assumed I would always be at KPL (because that was the plan) and that I would take it over when Mark retired. It therefore did not concern me, because I had no intention of leaving”.[90]It can be taken from the last that until then Mr Atherton regarded the 20% as his whether still at KP or not, which would require elaboration. Further, his remaining at KP was an ongoing assumption of his, not a binding agreement.[91]What is plain is that Mr Atherton had no immediate right to 20% of the shares in KP as against anyone. That had been expressly rejected in 2011 by those who might have made the transfer.[92]The Claim nevertheless avers that “[a]t least two meetings took place between mid-2011 and mid-2013 between” Mr Atherton, his uncle and Mr Donovan, and Mark Freed “where specific options were considered” for the granting of a 20% interest. It acknowledges that for “tax reasons it was decided not to transfer legal title to 20%... at that time”, but that it was “agreed and understood between” Mr Atherton, his uncle and Mr Donovan that he was “nevertheless to be treated as, and ‘in reality’ and/ or ‘essentially’ was a 20% shareholder” in KP, such that, by Mr Atherton’s understanding, each of Mark Atherton and Mr Donovan by “words and/ or conduct” made a “declaration of express trust over 17 ordinary shares”.[93]No meetings other than those already described are in evidence. Mr Atherton’s understanding of the donation from his uncle and Mr Donovan is not in his evidence. How an agreed express trust is derived from the explicit non-agreement to a legal transfer is not particularised. There is silence as to the position of the other shareholder, Free Dimension, generally, and specifically as to its pre-emption rights.[94]There are further words in this, which the Claim calls the “Trust Declaration”. Mr Atherton was to be “treated as… a 20% shareholder… and would receive the value of a 20% shareholding in KPL if KPL was ever sold. [Mr Atherton] understood that this 20% shareholding would be comprised of 10% of the ordinary shares held by each D”.[95]Again, that is not his evidence. He does not speak of receipt of value. Neither does he speak to an understanding that 10% was to come from Mark Atherton, and 10% from Mr Donovan; or explain why that should be so. There remains the sheer unlikelihood of his being promised an unconditional 20% on a future event, with no obligations in the meantime or presence at KP at the end; and the precise meaning of the sale of KP, or his understanding as to that, is likewise unelaborated.[96]It can also be seen that this plea elides two separate sides: a right to the shares, and a right to the value of such a shareholding. Which is it?[97]The Trust Declaration fails.[98]The Claim next draws from Mr Atherton’s efforts to receive his shareholding in JRG. It says that “[i]n or around August to September 2013” he approached his uncle and asked for his 50% “pursuant to the JRG Agreement”. That was refused. Instead they agreed that he would receive 20% of JRG, based (as we have already heard from the Petition) on being “repeatedly assured… he now ‘in reality’ held a 20% shareholding in KP”. Those assurances, given at unspecified times, are now not just from Mark Atherton, but Mr Donovan as well. Mr Atherton’s lack of certainty in all this is betrayed by what comes next. He is unable to say definitively that those were the facts. Instead they might be the alternative, not just the further, in “and/ or was entitled to receive 20% of the proceeds in the event of any sale of KP”. To repeat, it is not his evidence that he was told that. Indeed, it is not his evidence that Mr Donovan himself made any representations at all.[99]Those matters found the next defined term, the “Share Agreement”: because of them, there was an “oral contract, alternatively a contract by conduct” between Mark Atherton, Mr Donovan, and KP, that Mr Atherton would receive 20% in JRG and not 50%; this from KP, there being an obligation on them to “procure KPL to grant him the same”. That all happened. That it was in place of a 50% interest in JRG has already been rejected.[100]The additional part of the Share Agreement is that Mr Atherton “would continue to work for KPL and/ or JRG, including acting as a director of both, in order to further develop their businesses”. That at least recognises one of the fundamental problems with his case; but, once more, it is not his evidence; and it follows that what is actually meant is indiscernible: was he in some way obliged to work for KP; or JRG; or both; who could direct that; to whom was this “and/or” obligation owed?[101]The Share Agreement is then elaborated, such that “in the event that, contrary to the above, Ds did not already each hold 17 KPL shares on trust... pursuant to the Trust Declaration, the following were further express terms, alternatively terms to be applied on the grounds of obviousness, of the Share Agreement” being that Mark Atherton and Mr Donovan each held 17 shares on trust for Mr Atherton, and that if KP were sold he “would receive the proceeds of sale in respect of the 34 shares held on trust for him”.[102]Those elaborations have no connection with the Share Agreement, being the receipt of 20% rather than 50%; and cannot therefore be implied. As express terms they fail for the basic reason that the pleading does not accord with his evidence.[103]The Share Agreement fails.[104]The final, and “further or alternative” mode of proving his claim to the shares, are the defined “Representations”:
“during the course of the discussions described [above]… and on a number of occasions thereafter”, which are unstated, Mark Atherton “and/ or”
Mr Donovan “made representations and/ or gave assurances to [Mr Atherton], which they intended [him] to rely upon, that he was entitled to, and/ or ‘in reality’ and/ or ‘essentially’ held, a 20% shareholding in KPL, namely 34 ordinary shares, and/ or would receive 20% of the proceeds of any sale of KPL”.[105]Mr Atherton’s lack of genuine recollection is betrayed by the number of factual alternatives. His actual evidence has already been recited. It does not accord with this plea, imprecise as it is.[106]The Representations fail.[107]So too would have the alleged detrimental reliance. The difficulties with what Mr Atherton actually relied on have already been given in respect of the pre-2011 period; and nothing later obviates those. As though in proof of his evidential difficulties, although the pleaded representations are as to 34 shares, the relief he claims by proprietary estoppel is as to 17 shares held by each of Mark Atherton and Mr Donovan. He does not join up the two.[108]Two items of detriment are specified, on an “and/or” basis. First is that he took only 20% in JRG, not his 50% under the JRG Agreement. That fails for reasons given; but also because the receipt of the 20% in JRG was presumably a bonus under his KP employment agreement, but in any event not something to which he had any pre-existing right.[109]Secondly, he says he was “continuing to work for JRG and/ or KPL” (as this is a description of his own mind, he ought to know which) “including serving as a director, in circumstances where he could otherwise have sought more lucrative employment and/ or” (again, his own mind) “business opportunities away from KPL and/ or JRG”.[110]His hesitations and alternatives are such that he cannot prove that the representations were such motivation. More, his evidence does not say that they were. So, he does not identify any other business opportunities he might have sought, or evidence their lucrative qualities; nor indeed in anything but general terms those of his actual KP remuneration. It is certainly not enough for Mr Taylor to point to the fact that other recruitment consultants at JRG and KP left to earn more elsewhere.[111]The pleaded repudiations of the Representations are also illustrative of some of their difficulties. Mr Atherton was dismissed from KP on 26 October 2018, and removed as a director on 29 November 2018. “In causing KPL to dismiss C and/ or thereafter by removing him as a director of KPL, D1 and/ or D2 unconscionably repudiated the Representations… and have since refused to compensate him in respect of the same and/ or recognise his entitlement”.[112]Yet the Representations do not in terms relate to Mr Atherton’s ongoing employment at KP, or acting as its director.[113]None of the Thorner v Major [2009] 1 WLR 776 three stages are therefore attained by Mr Atherton.[114]Other pleas in the Claim are derivative from finding that there was a Trust Declaration or Share Agreement in averring fiduciary duties on Mark Atherton “and/ or” Mr Donovan to act as trustee in Mr Atherton’s best interests, and in good faith towards him; and a common law duty of care. I mention them only because, again, they disclose some of the large holes in Mr Atherton’s case.[115]First, some more KP share movements.[116]On 9 September 2015 Mark Atherton transferred half of his shareholding, 34 shares, to his wife Lee.[117]On 27 January 2016 Free Dimension transferred all its 34 shares to F & M (Investment Holdings) Limited (F&M), another BVI company, whose shares are held under a trust for Mr Freed’s grandchildren, and possibly others.[118]On 4 September 2020 the Athertons transferred all their shares to CMC, giving it 68 shares, Mr Donovan 68, and F&M 34. It is a complaint within the Donovan Petition that he was misled into waiving his pre-emption rights; of more import here is that Mr Freed’s defence states that they were discussed between him and Mark Atherton and Mr Donovan; and there would therefore seem no reason why they were not aware of them at all earlier stages. The sale was for £1m plus what Mr Atherton regards, probably correctly, as £200,000 additional consideration for consulting services billed by the Athertons, half in each of the next two years. It is stated that Mr Freed paid the £1m.[119]Mr Atherton pleads that on “breach of the Share Agreement and/ or the Duties” by sale of the shares, Mr Atherton “failed to pay [him] the sum of £300,000 representing the value of the 17 ordinary shares… which he held on trust”, ie half of Mr Atherton’s 20% holding. His further or alternative case is that “one quarter of any proceeds received by [the PRs] on the [Donovan] Petition by way of share purchase order or otherwise will be held on trust” for him “as the traceable proceeds of the 17 KPL shares”; or the failure to pursue that petition is by itself said to be a breach of the best interests and good faith duties.[120]The point to be drawn from this relief is as to the unresolved nature of the 34 shares, whether on the trust or the estoppel analysis. On neither would the claimed full value return appear appropriate. If Mr Atherton held the shares, there would be costs of realisation; the more so for the PRs, whom on his pleading, and as confirmed in submissions, Mr Atherton expects to meet the entire costs of the Donovan Petition. Yet, as was accepted by Mr Taylor, as to the PRs there must be an allowance at the least for the reasonable costs of asserting the claim by which the beneficiary’s interest was established; and the same must be true of the Atherton shares. There would then be the further issues, already adverted to, as to whether Mr Atherton’s rights against either party would be to the proceeds pre- or post- the meeting of their own tax liabilities.[121]As it is, the Claim fails.

Mr Atherton’s evidence

[122]Before turning to the balance of the Petition, it will be gathered that Mr Atherton cannot be treated as a reliable witness. The facts in the Claim, attested as true, in very large part do not accord with his written evidence. There is a sense in which they have been stretched to meet theoretical ways in which he might claim a shareholding in KP; which claim he did not actually intimate until some 10 years after he says it arose. He also correctly acknowledges that a long time is past, and his recall limited; but that does not excuse reliance on “and/or” facts, at least absent full explanation of why he is unable to express his recollection on a topic definitively.

Unfair prejudice within JRG

[123]We are back to 3 September 2013. Mr Atherton received his shares in JR the previous day. He and Mr Neto own 20 shares each, KP the balance. There are no special rights between the shareholders, nor understandings, although there is a view that JRG might at an appropriate point be sold; and there is no quasi-partnership.[124]JRG traded well. Its first active accounts, to 31 December 2011, disclose a turnover of £461,980, and a net profit of £1,468. Those to 2012 had turnover of £1,060,736, net profit of £77,842. 2013’s turnover was £1,529,198 and net profit £225,909; dividends of £280,000 were declared. 2014 had turnover £1,831,797, and profit £118,962. 2015 turnover was £2,890,246 and profit £89,324. 2016 turnover was £4,597,507, and profit £476,438; dividends of £175,000 were declared. The 2017 accounts were filed on 4 October 2018, with profit of £730,830 on turnover of £6,613,079, and £500,000 dividends.[125]In 2017 Mr Neto proposed a shareholders’ agreement, and recalls that a draft was prepared by the auditors for JRG and KP, Wilder Coe; but “Mark and Paul refused to sign it”. Mr Atherton says that Mark Atherton would not sign, as he “was a control freak and a bully” who would “make sure he was protected so nobody could make decisions without him”; not evidence which sits with his claim to 50% of JRG, or 20% of KP; or to there being a quasi-partnership.[126]Mr Neto recalls that in early 2018 JRG “was facing some commercial challenges”: a large client left, and competitors began to poach its recruiters, offering better remuneration; “the best employees were the ones generally leaving”. That did not prevent his receipt of a £15,000 bonus in April 2018.[127]Around then, Mr Neto raised with Mr Atherton the idea of selling JRG although, he emphasises, not because he was concerned about the state of its business:
“I have experienced many peaks and troughs… Winning and losing clients is very common”
. For his part, Mr Atherton “was starting to see that things were being run at JRG in the same way as KP”:
“Mark started to get involved on an almost daily basis”
. Mr Atherton’s relationship with his uncle had “got worse, and we ended up having a lot more disagreements”. In 2016 Mr Atherton had married Paula, who had worked at KP since 2001 and was one of those who, to his displeasure, “stood up” to Mark Atherton. So, “Jason was open to it”.[128]In April 2018 there was a meeting with Mark Atherton and Mr Donovan in the office they shared. Mr Neto “said that I was starting to think it may be a good time to see if the business is sellable. They asked why and I said that the business had got to a good size and was probably worth some decent money. At the same time, my wife and I were considering if we might move to Australia at some stage in the future because all her family live there. My recollection is that Mark responded with words to the effect of ‘sure, if that’s how you’re feeling, let’s take a look’. The general sentiment was that without me, there wasn’t a business… although I had not indicated an intention to leave… The outcome of the meeting was that we agreed that Jason and I would source an agent to value the business”.[129]Mr Atherton says “We talked about various things relating to JRG, including the idea of now being a good time to sell… Mark had no objections whatsoever. He said we could investigate this and it was agreed that Scott and I would look into it. It was either later that day or the next day that Mark and Paul called me into their office”- he worked in the same building- “and Mark said he was happy proceeding with a sale, and the three of us basically agreed it from a KPL perspective”.[130]The trouble with Mr Atherton’s addition is that there was no sale on the cards, nor even a valuation. What Mr Neto did after the meeting was to google agents to value the business. The Petition claims that at the meeting “it was agreed that JRG be sold”, but its next words withdraw from that:
“and that Mr Neto should take steps towards exploring such a sale, including procuring indicative valuations and considering potential purchasers”
. I prefer Mr Neto’s evidence, which limits the process to what was, Mr Atherton agrees, the outcome of the meeting: that a sale would be investigated. It could hardly be the case that, in that state of non-knowledge, any of them could agree there and then to a sale.[131]Progress was not swift. By June 2018 Mr Neto had narrowed down the search for an agent to Axis Partnership UK Limited (“Axis”), with whose Robin Boxall-Hunt he and Mr Atherton had a meeting in June 2018. Mr Neto recalls that “[w]e told Robin that we were potentially looking for an out”.[132]Axis provided a valuation of £4.6-£5m, which Mr Neto considered “a bit lean because we had large costs that anyone buying the company wouldn’t take on including the ‘management’ and ‘administrative’ fees paid to KPL”. We will come to those.[133]On 20 June 2018 Mr Neto signed the Axis “Instructions to Market & Terms of Business”; Mark Atherton signed the next day, for KP; and Axis countersigned on 21 June.[134]Among potential purchasers Axis introduced was Castlerock Recruitment Group. Mr Atherton and Mr Neto met them on 30 August 2018. Both say the meeting was embarrassing, as financial information was sought which they did not have; and which Mr Freed then refused to provide. “I was furious”, says Mr Neto. “I thought we had full buy-in from Mark and Paul. It felt like I had wasted four to five months of my time… I was frustrated, surprised and suspicious because their reactions were not consistent with wanting to sell the company. I spoke to Jason about it, who then spoke to Mark. Jason told me that Mark’s response was very hostile, and that he said words along the lines of ‘It’s my company, I’ll do what the fuck I want, when I want’”.[135]The Axis documents do not show such an abrupt cut-off. As late as 15 October 2018 they were marketing JRG, including telling the interested party that there “was an agreement that when the two minority shareholders wanted to sell they could”; however, that was by reference to Mr and Mrs Neto, as “Scott Neto wants to leave the UK”. There must also be a pinch of salt in the answering of these queries. Mr Atherton had on 23 August responded to an enquiry with “I originally wanted 40% and ended up getting 20% in about 2012/13”.[136]Mr Freed had been unhelpful. In an email of 18 September 2018 addressed formally to “Mr Boxall-Hunt” he refused cash flows or forecasts as “[w]e do not prepare” them.[137]Mr Atherton and Mr Neto considered their options. Mr Neto now decided that “I was too invested in the company to leave”. So they decided to offer to buy out KP, or as a fall-back, be bought out by it. On 8 October they had a meeting with Mr Freed and Mr Donovan, Mark Atherton being unable to attend as he said he was in hospital. At it, Mr Freed told them that he was now a director of KP: he had been appointed on 1 October. Among general discussions of the state of JRG’s business, including their disquiet at Mark Atherton’s greater involvement (although he was a director), the buy-out options were raised. Mr Neto recalls Mr Freed saying he would speak to Mark Atherton, and that there was to be a “relatively quick” response; within a week, says Mr Atherton.[138]There was then silence.[139]The next week, Mr Atherton picked up a call from the solicitors, Sherrards; it was for Mr Freed; he knew that they dealt with employment law; and he listened in (which is why the wrongful dismissal part of his claim failed before the Employment Tribunal). Although there were no names, Mr Freed said “he was going to fire a couple of people”. Mr Atherton understood that to be himself and Mr Neto.[140]They were duly called into the office for 26 October and dismissed, at meetings before Mr Freed, Mr Donovan and Ms Thompson. Their termination as directors of JRG was 12 December 2018; Mr Atherton’s as director of KP 29 November 2018.[141]As the Employment Tribunal found, the reasons for their dismissals were spurious. Mr Atherton was told that he had to go, having presented the ultimatum that it was him or them at the 8 October meeting; which he had not. Mr Neto was told the same, as well as that JRG’s sales and profits had dropped. Mr Freed told him that “with regard to my 20% shareholding, after everything had settled down, Mark had assured him that they would do a fair deal with me”. Mr Neto was awarded compensation of £100,442 against JRG, which remains unpaid. Mr Atherton was awarded £57,940 against KP, which after an offset was £35,754; also unpaid.[142]The JRG 31 December 2018 accounts do show a drop both in turnover, to £4,736,843, and profit, to £242,283. Both the net current assets and balance sheet had improved, though: from, respectively £706,301 to £952,771, and £745,873 to £988,156. These remained strong figures.[143]The Petition states that their removal was because Mark Atherton, Mr Donovan and Mr Freed, as those behind KP, did not wish to perform the Exit Plan, or alternatively buy their shares. The Exit Plan as pleaded has been rejected. As to the shares, it appears they did not want to buy them all out. It is not known why, but there was no obligation on them to do so. Neither is it known why Mr Freed became a KP director just before this, but it is hard not to sense his hand behind it all: the same hand which refused to prepare or give perfectly usual financial information.[144]As at 26 October 2018, Mr Freed was not yet a director of JRG, yet conducted the meeting. It was also he who had been liaising with Sherrards, and leading on the policy to remove. He was appointed a director of JRG on 23 November 2018, the same date as Ms Thompson; but there appears to have been no actual distinction in his roles between the two companies; and therefore, although unparticularised, the Petitioners’ plea that he also acted as a de facto director of JRG from the date he was appointed a director of KP, being 1 October 2018, appears correct: he was deeply involved in the decision to remove the director who was running JRG.[145]For similar reasons, although there was a gap in Mr Donovan’s directorship of JRG from 25 January 2018 to 31 December 2019, he too must be treated as a de facto director between those dates: nothing indicates his role to have changed; and indeed that is his position in his petition.[146]There are further or alternative pleas that Mr Freed and Mr Donovan acted as shadow directors over the same periods. That status is distinct from acting as a de facto director; and the elision of the two is, without explanation, unprincipled. No particulars of the shadow status are provided; and, while not withdrawing the plea, Mr Taylor in submissions could identify nobody of whom they were a shadow. This is another part of the pleadings which ought never to have been an issue.[147]It is Mark Atherton, Mr Donovan “and/ or” Mr Freed who are said to be responsible for unfairness to the shareholders of JRG, including the Petitioners, in dismissing Mr Neto unfairly and wrongly, as found by the Employment Tribunal; leading to the order for payment which has in fact been unmet. The unfairness lies in the lack of proper purpose behind the dismissal. By amendment at closing, this was condensed down into a complaint that contrary to s.174 of the Companies Act 2006, they “ignored proper professional advice as to whether Mr Neto’s dismissal was lawful and appropriate”. They did. The Sherrards advice sent to Mr Freed on 23 October 2018, repeated thereafter, and surely circulated among those acting as directors, was that Mr Neto’s dismissal would be found unfair, he would succeed before the Tribunal, and be awarded the maximum amount. There is no obvious excuse for the ignoring of such clear advice, and they have put forward no explanations. That was a breach of s.174 and, absent other evidence, s.172 as well. It was thereby both unfair to the members of JRG, and prejudicial to them, in saddling them with an unnecessary liability.[148]However, as the Petition has not demonstrated any connection between the Petitioners’ shareholdings and Mr Atherton and Mr Neto’s acting as directors, their removal was otherwise not unfair to their interests as members.[149]Nor was there any obligation to realise the value in JRG by sale, whether in 2018 or otherwise; and hence no breach in not carrying sale investigations further (they never attained even a non-disclosure agreement basis, with anyone).[150]Under the leadership of Mark Atherton, Mr Donovan, Ms Thompson and Mr Freed, joined from 3 September 2019 by Kyle Birkin, JRG’s trade in the 2019 year suffered apparent decline. Its accounts, filed on 24 December 2020 but approved by its board on 14 July 2020, show net current assets down to £206,575, and a balance sheet of £233,139.[151]On 29 January 2021 it entered administration. Mr Freed’s statement of affairs of 10 March 2021 shows a deficit to members of £975,398. There were two creditors: HMRC at £40,466, and KP at £989,832.[152]On the same date, the administrators pre-packed its business to Achieva Group, for £50,000.[153]At administration, the shareholdings in JRG remained 10 to each of the Netos, 20 to Mr Atherton, and 60 to KP. KP’s shareholders were CMC, which had taken transfer from the Athertons on 4 September 2020 of their 68 shares, F&M with 34, and Mr Donovan with a now-minority 68.[154]The Petitioners say that CMC was controlled by Mr Freed; and so he controlled KP. On its incorporation on 14 August 2020 Moshe Freed had taken its sole £1 share. On 30 October 2020 he is recorded as having transferred it to his uncle, who also joined him as a director. The primary sum under the Atherton acquisition had been funded by Mr Freed, though in the name of CMC. Moshe Freed’s evidence is that “I understood that I held the single share on behalf of F&M”, which Mr Freed also controlled; and perhaps Mr Freed did likewise when he took legal title; while Moshe Freed and his uncle had incorporated CMC, Moshe did not know the precise trust structure, which might involve a Hong Kong company and a discretionary trust. He also says, unsurprisingly, that it was “set up as a special purpose vehicle for the purchase of Mark’s (and his wife, Lee’s) shares… My understanding was that Mark wanted to retire”. Mark Atherton had formally left JRG as a director on 31 December 2019. He left KP on 4 September 2020 when he sold his shares; and Moshe Freed says he replaced him by appointment of 9 September 2020. Ms Thompson was then appointed director of KP on 11 September 2020.[155]It was JRG’s director who placed it into administration: Mr Freed.[156]He also controlled Achieva Group, also of recent incorporation, 9 September 2020, with Mr Freed as sole shareholder and he and Moshe Freed its directors. Ms Thompson was appointed director on 23 November 2020. On 29 October 2020 Mr Freed transferred all his shares to CMC.[157]Thus, Achieva Group’s purchase of JRG’s business served to transfer it into the sole hands of Mr Freed, severed from the minority interests. No doubt Mr Freed was not going to write off the £1m he had spent on the Athertons’ shares so swiftly. On the contrary, this was an orchestrated plan.[158]It would work only if there were grounds to put JRG into administration.[159]Mr Wright resigned from JRG on 23 December 2020, although it became effective on 9 January 2021. He was then a Senior Consultant. He cannot understand how three weeks later the company was in administration. He had no reason to believe it had any financial struggles, despite the pandemic. On the contrary, while there had been a slowdown in 2018 as consultants left, and Mr Neto’s removal took with it “a key earner” and a degree of morale, 2019 had seen a “sustained improvement”, and after return from furlough in 2020 business was “booming”. Asked if there was reason to think at the end of 2020 that JRG was “about to go under”, his reply was “Not at all”: “the consultants… were more than covering their costs and the costs of the resources”.[160]Mr Mortlock resigned on 8 January 2021, when he was a Principal Consultant (and so senior to Mr Wright). Despite a difficult 2018, 2019 had seen significant improvement, and he found its “insolvency hard to believe”; “clearly money was not an issue because Norman was planning to spend a lot on the new office as part of the merger”; JRG was in “good health”. In cross-examination he said “I had my best year ever in 2019. The final quarter of 2020, I billed a very good quarter. So we were very strong as far as I was concerned”.[161]The proposed merger was open news. Seemingly coincident on the incorporation of CMC and then Achieva Group, in September 2020 Mr Freed and Mr Donovan had what Moshe Freed recalled as “a big argument. I think Paul thought that he was being pushed out of the Business. Paul was a minority shareholder in KPL but after the argument Norman became very aggressive and kicked him out of the building. I couldn’t understand why Norman was treating Paul in this way and I didn’t know how a company could run without a Managing Director”.[162]Moshe Freed’s evidence needs to be treated with a certain degree of caution. He was notably unforthcoming on his uncle’s corporate arrangements in which he had been involved; and, as Mr Carter elicited, he gave his evidence against the background of a written “Settlement Agreement and Release” with Mr Atherton and the Netos dated 19 April 2023 which released claims they had intimated against him, and obliged him to use reasonable endeavours to assist them, including in relation to what became the Petition. That said, there was obviously no obligation on him to give anything other than true and full evidence. Another motivator of his might be said to be that he was another, with Mr Atherton and his wife, Mr Neto, and Mr Donovan, who after crossing Mr Freed, or being perceived as doing so, was removed. For Moshe Freed that was the culmination of growing tension between his uncle and his father, Mark Freed, and their own tensions generated by Mr Freed’s treatment of the minorities, which “reached breaking point. On 4 February 2021, Norman lost it. He got very angry and slammed his hands on the desk when I refused to transfer money to him from F&M. Norman was very intimidating. Later that day, I was kicked out of the IT system and excluded from the building”. On 9 March 2021 Moshe Freed resigned his directorships of KP, Achieva Group, and CMC. I do not regard his observations on his uncle’s behaviour, which were what brought about his removal, as anything other than genuine.[163]For Mr Donovan, too, the result of his argument with Mr Freed was removal, on 21 September 2020, as director of JRG and KP. On 14 June 2021 he presented his petition. Moshe Freed and Ms Thompson thought Mr Freed should settle the dispute by paying him £1m for his shares, like Mr Atherton. “Norman did not want to pay him anything”.[164]What is telling in that is that even at this late stage, considerable value was perceived in the KP shares.[165]It did, of course, have its own business. Its filed accounts, which are on a consolidated group basis, show a positive balance sheet of £2,888,117 for 31 December 2018, and £2,750,508 for the next year. Despite the consistency of those figures, it will be recalled that Just Recruit’s balance sheet, which forms part of them, was, respectively, £988,156 and £233,139.[166]It is from September 2020 that Ms Thompson comes more to the fore; oddly, it may be thought, as that is when her mother and stepfather sold their KP shares. On 11 September 2020 she was appointed a KP director, so joining Norman and the recently-appointed Moshe Freed. On 21 September 2020, the day Mr Donovan was removed, she was reappointed a director of JRG, having previously held office from 23 November 2018 to 26 February 2020. Moshe Freed was also appointed that date, and Kyle Birkin had been in office since 3 September 2019; Mr Freed remained a director. On 23 November 2020 she became a director of Achieva Group, again joining Norman and Moshe Freed.[167]Ms Thompson had left school at 16 and become a trainee hairdresser. She had joined KP in 2003, and was employed by it until the merger, and then by Achieva Group. Despite her being appointed as director of JRG at the same time as Mr Freed, and in order to replace the wrongly-sacked Mr Atherton and Mr Neto; and despite her job description developing from Administrative Assistant, to Senior Accounts Manager in 2018, to Head of Administration as Mr Freed called her in the Employment Tribunal, to Managing Director in 2020, it is her adamant position that “I have never been involved in actually running a business or strategic or financial decision-making. I deal with day to day issues”, running the administration. In doing that, she said she was instructed by Mark Atherton and Mr Donovan until the latter’s removal in September 2020; and by Mr Freed, she added in cross-examination, once he had bought the Athertons’ shares; and by Moshe Freed once he was appointed. “These people were my bosses… they had to deal with issues that were above my level”.[168]On her initial appointment to JRG in 2018 she said “I would never have been a director if it was not for my stepfather falling ill in 2018… I was only made a director because my stepfather became hospitalised and completely unable to work, but they wanted someone on the board to maintain balance”. That indicates an active role, even if it was one imposed on her rather than sought: she thought she was there, she said, so that none of the other directors could make a decision without Mark Atherton’s agreement. That she did not attend any board meetings does not take matters further, as no minutes of any have been produced, and in large part decisions were made informally, by people who worked in the same office. “I believed I was there to stop anyone else having power to make major business decisions without Mark’s involvement, so it was basically a passive role where I could report to Mark if needed. I intended to give this up once he was well enough to return”.[169]Whether he ever was is not known; and in order to perform her “passive role” she had to be engaged actively at directorial level. She did not link her resignation from JRG on 26 February 2020 to his health, and said, as with her appointment, that “again there was no change in my role”. The same was so when re-appointed on 21 September 2020. The most she would say about that was that it was connected to Moshe Freed’s of the same day: surely: but why? And why choose her, now that her stepfather no longer had an interest? The same with her appointment 10 days earlier to KP: she proffers no explanation.[170]Her evidence was difficult: cussed and unwilling; and, as will be apparent from the above, not the full story. The impression was of someone who was biddable, by Mark Atherton, and by Mr Freed: someone who would unquestioningly carry out instructions, which will be seen when we discuss the transactions she made, and in Mr Atherton’s statement that “[s]he would do whatever Mark told her… including picking them up from the pub most lunchtimes when they had drunk too much”. Regrettably, that extends into a desire to protect those who direct her. The JRG administrators sold causes of action to Manolete Partners plc (“Manolete”), which in July 2022 issued proceedings against Mr Freed, KP and Achieva Group concerning the payments which will also be addressed below. ICC Judge Mullen heard the trial, and handed down judgment, in favour of Manolete, under [2024] EWHC 2242 (Ch), on 30 August 2024. The Petitioners do not rely on that judgment as being determinative of the issues here; but they do point out that on 7 February 2024 Ms Thompson filed a witness statement on behalf of Mr Freed, in which she failed to tell the truth:
“I confirm that I received financial and payment instructions from Moshe. Norman neither gave financial instructions nor was he a bank signatory for [JRG]”
. In fact, Mr Freed did give such instructions; and in practice had access to the banking system.[171]Ms Thompson did not appear at the Manolete trial; that was because, she said, Mr Freed told her not to.[172]Her evidence must be treated with great reservation.[173]By the time of his appointments to JRG and KP in September 2020 Moshe Freed, while running his own business, was “still doing some accounting work for Norman”. That had increased from around 2018, and again with a change of auditors in 2019. “By this point I was assisting with preparing management accounts, and auditing and assisting with the yearly financial accounts”. Freddie Freed, then only 18, took over the bookkeeping. He also does not say exactly why he was appointed then; but at the time, he continued to maintain a good relationship with his uncle. “I wasn’t involved in the management of operational side of the Business”, he said, “which was mainly down to Norman and Holly Thompson, who was Head of Operations”.[174]There is also evidence on this from Mr Wright and Mr Mortlock. By the time Mr Wright left, in the new year of 2021, the senior management was in his view Mr Freed, Ms Thompson, Moshe Freed and Mr Birkin (who had ceased as a director on 2 December 2020). “It was clear that Norman was the sole decision maker and that Kyle, Moshe and Holly effectively acted upon Norman’s instructions. All decisions were approved by Norman although… I did not have much contact with them”. So, this was not a whole picture view. In cross-examination he said that “I think operationally they”, meaning the others, “might have had involvement but ultimately it was Norman”.[175]Mr Mortlock from his higher-grade position noted that by 2020 his direct reporting line was to Mr Birkin, who reported to Ms Thompson. He assumed that “obviously Norman was giving guidance”. He was not impressed by Mr Birkin, who managed the Occupational Health team, who “generally was not a good manager and was not good at managing the business” of JRG.[176]Ms Thompson says it was at around the time of her re-appointment to JRG that she became “aware of a plan to rebrand/ restructure as Achieva”: Mr Freed or Moshe Freed told her. Moshe Freed confirms that Achieva Group was set up on Mr Freed’s instructions to be a recruitment business and as part of the rebranding, and that from September 2020 Ms Thompson “became very active and very hands on”, managing all payments, albeit “on Norman’s instructions”. There began to be “a big turnover of staff, with lots of people leaving”.[177]Mr Wright recalls that at some point in October 2020 staff were told that JRG and KP would “be joined into a single entity based in St Albans at some point in 2021”; the name was not disclosed, but it was said this was to “improve marketing and… position”. The Petition says that “[i]n or around October 2020, the staff of JRG and KP… were gathered together and informed by Mr Freed, with Ms Thompson also present as a director of JRG, that JRG and KP… would be combined into a single new entity under a new brand name. This was a reference to Achieva [Group]”. Nobody gives that evidence.[178]Instead, in November 2020 Mr Wright says that all JRG staff were invited to individual meetings with Ms Thompson and Mr Birkin. At his, on 23 November, they told him that because of new covid restrictions all JRG staff would be furloughed from 1 December, and 80% of the salary met by the government scheme. He was also told that staff could top up their salaries by working full time in the St Albans office. Mr Wright found this strange for two reasons. First was that August-November had been “very good months” for JRG, and he wondered what would happen to his commission. Second was that he did not think furlough plus full time working was permitted.[179]The next day he said he would take furlough, but not attend. On 25th, he was told he would not be paid his commission for November, which was £8,000; yet others, who had agreed to work full time as well, received theirs. Later that day he was telephoned by Mr Freed, as arranged by Mr Birkin. In this first conversation they had ever had, Mr Freed was “quite… aggressive” in tone; he said he was the owner of JRG, which Mr Wright challenged, as he knew his interest was 60%; and in the end, Mr Freed told him to leave and not return. Mr Wright told the court that “[i]t was quite an unpleasant conversation… His tone was pretty aggressive, I’d say”. Mr Wright sent a grievance email to Ms Thompson on 1 December; and on 23 December resigned.[180]Mr Mortlock also had a meeting on 23 November, with Ms Thompson and Mr Birkin. He too was surprised at the working furlough proposed, and asked if was legitimate. “After speaking to Norman, Holly confirmed that it was not an issue… because KPL was a separate entity”. Mr Mortlock resigned on 8 January 2021, when he found that the arrangement was, indeed, improper; Mr Freed insisted it had derived from independent professional advice. In the meantime, he recalled a further staff meeting, on 18 December 2020, about the merger, and the new “Achieva” brand. “This was mainly Norman’s initiative”.[181]Here are examples of Ms Thompson acting as director of JRG; but under the ultimate control of Mr Freed.[182]The Petition speculates that Ms Thompson’s resignation as director of JRG on 2 December was because the day before the Petitioners had written to Mr Freed, JRG and KP to threaten an unfair prejudice petition. Ms Thompson says that was not so, but provides no alternative. It is Moshe Freed who helps, as he also resigned then (as did Mr Birkin, leaving Mr Freed sole de jure director). He says Mr Freed told him to change the directorships, which was indeed because of the litigation threat:
“Norman wanted to fight all the disputes and didn’t want others involved”
. Moshe Freed and Ms Thompson still remained involved with JRG, though: it was she who emailed all staff and clients of JRG and KP on 27 January 2021, announcing that “with the new year, we are undergoing a transformation and will be relaunching with a new name, new brand and new working environment”.[183]On 18 December 2020 Mr Freed and Moshe Freed met FRP, who were providing insolvency advice and later the administrators. The Petition says Ms Thompson was there as well, based on Moshe Freed’s evidence; which is not impossible, as she remained a director of KP even if not of JRG; but she is adamant she was not; which I prefer, as it is supported by her not being referred to as an attendee in FRP’s notes of the meetings (so, if she was there, she played no part), nor in Miles Needham’s evidence in the Manolete proceedings. The meeting was to discuss placing JRG into an insolvency process, with its business bought out by Achieva Group. It was a drawing together of Mr Freed’s threads. Moshe Freed recalled it as short, about 40 minutes. Having thought it was to be about the threatened litigation, he found it was about putting JRG into an insolvency procedure. He and his uncle had not discussed JRG’s financial position before the meeting, “but I know that all the companies looked good and profitable”. His impression, surely correct, was that the insolvency decision “had already been made”. They discussed pre-pack administrations, and Mr Freed expressed his intention to buy the business “for a minimal price”. Moshe Freed joined the dots, considering it “clear to me then” that administration was Mr Freed’s way to defeat the intimated claims. From the above, though, it is also clear that this was a plan being enacted over a much longer term.[184]On the same day was a meeting for all JRG and KP staff, at which Mr Freed and, as Moshe Freed says, “a marketing person” gave a presentation about re-branding to “Achieva”. “I could see the benefit of being one brand instead of multiple smaller ones, and I thought a re-brand would make the Business better and stronger. But it did not look like a genuine re-brand. It looked like [Achieva Group] was simply going to take over the Business”.[185]Moshe Freed had been expressing his concern about JRG’s minorities to his uncle since finding out in late September 2020 about the proposed business transfer. The FRP meeting exacerbated them. He thought that the transfer to Achieva Group “would give us a serious problem with the minority shareholders. I started to ask more questions of Norman… as to how financially and legally we were going to deal with the transfer of the Business”; but after the Christmas and New Year break he caught covid, and was out of the office until mid-January 2021.[186]It is the Petitioners’ case that after their exclusion, “the affairs of JRG were carried on… by, at least, Mr Freed in such a way as to contrive its insolvency and appropriate its business and assets to himself and/ or [KP] and [Achieva Group]”. The planned appropriation by transfer to Achieva Group has been described. There is no identified transfer to Mr Freed himself; nor to KP, whose accounting obligations at Companies House have for years been retarded: its last filed accounts are those to 31 December 2019; so preventing a clear view of its affairs. What is indicated by the announcements is that its business too would transfer to Achieva Group; and there are no contra-indications. On 29 July 2021 it became a subsidiary of Achieva, through the transfer by CMC of its 100% shareholding. That transfer was, it seems, gratuitous; and is unexplained, although potentially linked to the presentation of the Donovan Petition, to which CMC was a party, on 14 June 2021. It is another example of Mr Freed’s adept manoeuvring of entities in his own interests.[187]It is also the Petitioners’ case that JRG’s insolvency was “[f]urther or alternatively” caused by “serious mismanagement” of JRG by its directors including Mark Atherton, Mr Donnovan, Mr Freed and Ms Thompson involving “at least” breaches by each of their duties under s.174.[188]This does not seem to me a “further” case. There was a deliberate contrivance of insolvency; or there was non-deliberate mismanagement. It would be most unlikely that, were there contrivance, the insolvent position were caused also by mismanagement: the contrivance was to achieve insolvency. The indications of mismanagement in the year-on-year decline, already outlined, will be addressed anyway below; and so too, albeit for context, other elements, being excessive directors’ fees and administrative expenses. The non-replacement of employees, such that at 31 December 2018 JRG had 21, but only 12 the next year, and only 3 by administration, is too generalised to found an allegation of mismanagement.[189]To recap, JRG’s filed accounts moved from net current assets of £952,771 and a balance sheet of £988,156 on 31 December 2018, to, respectively £206,575 and £233,139 the next year. A little over a year later, its statement of affairs shows a negative £975,398.[190]Covid is no explanation for that last figure. The expert, Matthew Haddow, says that: “my research indicates that the healthcare recruitment industry specifically may not have been adversely affected by the Covid-19 pandemic, and may have even experienced growth due the classification of healthcare as an essential service… None of the competitors [of JRG], for which sufficient information was available, reported a loss in 2020 or 2021”.[191]Certain expenses had always been high, which is why Mr Neto thought Axis’s valuation light: no buyer would have similar administrative expenses to those met by JRG. Those for the year end 31 December 2018 were at £260,000 £20,000 higher than the previous year. Mr Atherton and Mr Neto had always recognised they were greater than the norm; but, being required by KP (of which Mr Atherton was also on the board), they “had felt unable to object” even though they plead that that were “in reality, a disguised dividend to KPL alone”, and were “Further or alternatively… manifestly excessive and/ or excessive in that they did not represent fair value for the services provided by KPL to JRG which they covered, namely:(i) approximately half a day per week of work by Mr Atherton;(ii) limited bookkeeping and accounting services provided by Mr Freed and an accounts assistant; and(iii) limited secretarial support provided by Ms Thompson”. Later, they say that the increase to £260,000 was “unjustified and manifestly excessive” compared with actual fair value.[192]They cannot, though, maintain that as a head of unfair prejudice, because as directors they were complicit in agreeing to pay those amounts. It also follows that it is hard for them to say, absent a particularised case, that they were prejudiced unfairly by the continuation of such practice after their departure.[193]Instead, they point to the uplift in expenses paid to £400,000 a year; and that in the Manolete claim £140,000, which corresponds with the additional amount, was said by the defendants to be for the fees of Mark Atherton and Mr Donovan as directors of JRG. These extra sums were paid to December 2020, although Mr Donovan ceased in September 2020 and Mr Atherton in December 2019.[194]The Petition runs these into both the serious mismanagement and the contrived insolvency cases. There is a rub. Mr Haddow, in his admirably fair evidence, points out that actually, for 2019, £140,000 in directors’ fees was not necessarily excessive, as Mr Neto, who needed replacing, cost almost the same in the previous year: £138,997. Mr Atherton was also being replaced. Hence, says Mr Haddow, there is a factual issue: “It is unclear if the services provided by Mark Atherton and Mr Donovan directly replaced those provided under Mr Neto’s directorship, although there may have been a declining need for services given the decline in turnover of approximately 50% in 2019”.[195]So the point becomes a different one: how more fees were justified when JRG’s performance was declining; especially when Mr Haddow identifies the value of the other services as £69,067, including a 10% profit margin.[196]The actual allegation made in the Petition is that the post-removal excessive charges, being their totality, were a breach by Mr Freed of the duties in and around s.171, s.172, s.174 and s.175. No particulars are given. It is also said that Ms Thompson breached her duties in respect of such payments as occurred while she was a de jure director of JRG, as she “authorised, approved and/ or permitted” them. No details are given of those three aspects. In the circumstances, these large payments can at most be seen as deliberate removals of money from JRG, by its new controllers, which in the event was a partial cause of its insolvent position at administration. Any breaches of duty would have required pleading with proper specificity.[197]The large remuneration does tell the story that from January 2019, the first month after removal of Mr Atherton and Mr Neto as directors, JRG was now being run for the benefit of the majority; and that at a time when its fortunes were on the downward part of the cycle.[198]They are not the reasons for the vast decline in its financial health disclosed by its filed 2019 accounts. Instead, those had been deliberately and dishonestly doctored by Mr Freed.[199]On 15 May 2020 Mr Freed sent Moshe Freed the 2019 year end accounts for JRG which he had produced. There was a small profit, of £9,294; but a balance sheet improval from £988,156 to £1,337,480.[200]On 6 July 2020, Mr Freed sent through a different version. These now showed a significant balance sheet decline over the year, to £573,167. These accounts were the basis of those approved on 14 July 2020 and filed, which finally had a balance sheet of £233,139.[201]The alterations effected by Mr Freed were simple, categorically. He reduced what must have been the easily provable number, and essential as it was the turnover figure, for “Consultants Fees Received” from £3,248,486 to £2,484,274. The difference of £764,312 was now a loan to JRG from KP, again easily provable. The effect was an annual loss of £755,017.[202]The JRG and KP books needed to balance. So in KP’s accounts he increased its Consultants Fees Received by the margin, £764,312. He had just switched that income from one to the other, and saddled JRG with a loan in the same amount. Comfort as to this conclusion, but no more, can be taken from ICC Judge Mullen’s recording Mr Freed as “content that any inconsistencies between the Defendants’ case and the contemporaneous documents could be dealt with more or less at the stroke of a pen by adjusting intercompany balances”.[203]JRG’s 2019 loss was described by Mr Freed to the administrators as being about £800,000 and together with the next year’s loss of around £500,000 was causative of its insolvent position. There are no accounts for 2020 for this to be checked.[204]Moshe Freed confirmed that Mr Freed had prepared these spreadsheets; and May’s 2019 profit was “consistent with an audit I had recently been involved with which showed that JRG was at least breaking even”. Himself an accountant, and the liaison with the auditors, he confirmed that he read the two sets but for each “I didn’t query the adjustment. Norman was in charge, so I followed his instructions and forwarded the revised spreadsheet to the auditors”. He assumed his office would have drawn the differences to the attention of the auditors.[205]Moshe Freed was also of the belief that there might be a credible explanation:
“management fees between the companies and stuff like that, especially with inter-company group companies”; or, later, and more plausibly, that JRG might have collected KP fees, which arrangement was reflected in the July version. He agreed that his explanations “would have to be investigated”; and that this “was a big difference”
. Repeatedly, his answer was: Norman would know.[206]Of that there can be no doubt. He has chosen, though, not to defend. Here are two sets of accounts for the same period with large differences in fundamental categories; including the sudden insertion of a sizeable loan; and, together with other elements, on the back of which Mr Freed was able to achieve what he told FRP he wanted, to sweep up the business cheaply through administration. Further, Moshe Freed, who had contemporaneous, if limited, involvement, and who therefore might be able to explain them, is unable to do so.[207]Of course, had we the underlying accounting documents the matter might be easily answered even without explanations in defence. There are none; and no defendant has provided any disclosure in the Petition or the Claim. The administrators did not have the documents. Mr Freed told them they were destroyed in a flood. Mr Atherton has considerable doubts about that, as he had already been regaled with Mr Freed’s and Mark Atherton’s story that when in the 1980s their garage business found itself in trouble, they “put all their documents and paperwork into a portacabin and flooded it to destroy all the evidence”. In the Manolete proceedings Mr Freed complained about his inability to produce the explicatory documents, because “a large number of the Company’s records were destroyed by water damage when the landlord’s builders… cut through a mains water pipe and damaged all the computers beyond repair. This took place on 8 April 2021 and was reported to KPL’s/ AGL’s insurers. Notwithstanding this, I have recovered many records from AGL”.[208]Both Moshe Freed and Ms Thompson recalled the flood. She was unable to tell the court what had been damaged. She could not tell it, despite being in charge of administration, whether files were stored exclusively on the computers in the basement, or on servers elsewhere. That was another example of her attitude, defensive of Mr Freed, and not the whole truth. She also said that she remembered that it had affected some paper records and computers, but could not now say to what extent. Moshe Freed recalled his uncle messaging him with news of the “flood and a lot of damage at the office”, but “I don’t think it was as serious as Norman claimed. I went to collect my things, including my business’s computers and files, and most of the items were recovered without any damage”.[209]On this evidence the flood is an inflated story convenient to Mr Freed. It may also be noted that the JRG administrators ought anyway to have been in possession of all its documents by April 2021; and, strikingly, that as it was a Bibby condition that it receive ongoing financial information, it too might have been able to produce documents, if asked.[210]It follows that Mr Freed’s dishonest creation of the July version of JRG’s 2019 accounts is proved.[211]It follows as well that the Petitioners were thereby treated unfairly as members; and that they suffered prejudice of significance, both in the switching of value away from JRG, which ultimately resulted in the grounds for administration; and in their inability to place any reliance on its accounts.[212]The relief which would naturally flow from that is that they should have their interests in JRG bought out as at 31 December 2018. That is not their date of removal, which is the primary date they suggest, but their removal was not itself unfairly prejudicial. It is the last date for which true and honest filed accounts are available.[213]What relief is actually appropriate is for another hearing.[214]Also contributing to JRG’s purported insolvency were substantial payments made in December 2020, each at the behest of Mr Freed.[215]On 17 December JRG paid Achieva Group $37,000, €5,000 and CHF2,500; and on 24 December $54,000. The note in JRG’s cashbook for each is “KP Loan”; so too for a payment of 4 December 2020 JRG. The inference is that these were therefore in reduction of a loan from KP, even if it was not the immediate recipient. Given the false creation of the KP loan in the 2019 accounts, it is averred that each was without any justification.[216]The same is said of a payment of £600,000 from JRG to Achieva Group on 22 December 2020. Mr Freed told the administrators that this was repayment of sums due on a revolving credit facility provided by Achieva Group and by which it would meet certain of JRG’s liabilities. That was “false”. The schedules Mr Freed gave the administrators to prove Achieva Group’s payments not only added up only to £508,223, but just contained entries which, apart from two made on the date of administration, were actually payments by JRG of its own money, funded by Bibby.[217]There is no other evidence supporting a position that these payments met genuine liabilities of JRG. Given the findings of Mr Freed’s dishonest manipulations, these must be taken as more of the same; and were found such by ICC Judge Mullen as well. Mr Freed was thereby in manifest breach of each of the identified directors’ duties, Mr Freed being a director of Achieva Group as well.[218]Ms Thompson in the end accepted that it was most likely that she made each of these payments. That ought not to have been a difficult admission, as her evidence is that “[a]s part of my job I made payments for or between entities in the group”. It goes on: “I never decided what payments would be made. I was not authorised to make payments by myself; I always needed the authority of someone else beforehand. When I made transactions… which were often for significant amounts of money, I would always check with the person making the transaction”, she means authorising it, “to make sure there were no mistakes as to the amount being transferred or the recipient”.[219]From 3 December 2020 Ms Thompson was no longer a director of JRG. The Petition nevertheless says that in making the December payments she “acted in serious breach of her fiduciary and other duties as a director”. That must be rejected. It goes on to give the alternative, though on its usual “and/ or” basis, that she was a de facto director between the end of her first appointment, 26 February 2020, and her reappointment on 21 September 2020; and from 2 December until administration.[220]No particulars of this plea are given. Mr Carter characterises her even during her appointments as a “director in name only… [who] merely implemented the directions of others”. That would not save her from liability under s.171(b) for paying away the company’s property; nor, had it been pleaded, for failing to acquaint herself fully with the company’s affairs. Her evidence is insistent that when she was a director her role was nominal; that in making the December, and other, payments she acted under instruction; and that her role never altered with her directorships. She was just an administrator, who on occasion performed some managerial functions. So “I was never told why… [any] payment was being made… It was not my business” and “I was not involved in preparing the accounts”, so did not know how payments would be treated. She did not raise any concerns about the December payments as “[i]n truth, I don’t feel like it’s my business to question the transfers from my bosses… It’s their money, their companies, so I don’t feel it’s my right to question what the payments are for”. She would be instructed to make them in person, or on the phone, or by pieces of paper; rarely by email. When she became a director of Achieva Group, again she had no involvement with strategy; instead she was “just making sure the change worked at a business level”, meaning the practicalities of its takeover of the business. She received nothing extra for acting as a director of JRG.[221]Despite the critical eye with which her evidence must be viewed, there is nothing to gainsay this ministerial role. As Mr Carter says, for her to be treated as a de facto director she must have undertaken functions “which could properly be discharged only by a director. It is not sufficient to show that [s]he was concerned in the management of the company’s affairs or undertook tasks in relation to its business which can properly be performed by a manager below board level.”: In re Hydrodam (Corby) Ltd [1994] 2 BCLC 180, 183. Millett J there also says that it is “necessary to plead and prove” those functions. Neither has been done.[222]It follows that no breaches of fiduciary duty by Ms Thompson have been demonstrated.[223]It is also said that she “further dishonestly assisted Mr Freed” in his breaches of fiduciary duty through the contriving of insolvency, including the December payments, leading to the appropriation of its business.[224]The alleged assistance was that she made the December payments; served as a director of Achieva Group; and was “[a]ctively assisting in steps preparatory to the pre-pack… including attending the 18 December 2020 meeting with FRP and taking steps to effect the practical transfer of the business from JRG to Achieva [Group], including the 27 January 2021 email”.[225]This assistance (it is not clear if it is each element, or any of them) “was dishonest in that it was inconsistent with the standards of conduct to be expected in the circumstances from a person behaving honestly”. That assertion is made because her assistance “involved, at least, her deliberately closing her eyes and/ or deliberately not asking questions of Mr Freed but instead proceeding to carry out the acts of assistance”.[226]For how the honest person would have behaved, the Petition relies on the example of Moshe Freed from September 2020 to January 2021 raising the issue of the proposed treatment of the minorities. That is not an appropriate comparator here: unlike Ms Thompson, Moshe Freed was an accounting professional, well aware of his duties as director, and involved in strategic decision-making.[227]Looking first at the items of assistance, Ms Thompson made the December payments, in an administrative capacity, at the direction of Mr Freed. She was not at the FRP meeting. The 27 January 2021 email was, as the Petition says, in the name of Achieva Group, announcing that “with the new year, we are undergoing a transformation and will be relaunching with a new name, new brand and new working environment”. It was circulated to all staff, who already knew that, and had done for months; and to JRG and KP clients, whose state of knowledge is not known, but who were not told by this anything they would not soon know. In the circumstances, it was just the sort of email which would be expected, which could have been circulated by anyone. How her being a director of Achieva Group amounted to assistance is not particularised. There is a plea elsewhere that her becoming a director of Achieva Group on 23 November 2020 placed her in breach of s.175. As JRG’s other directors on that date were Mr Freed and Moshe Freed, who were also directors of Achieva Group, and Mr Birkin, the likelihood is that they all knew about it; the Petition also fails to identify a single conflicted act within the period.[228]Effectively, the only assistance which can stand is her making the December payments. For those we have the explanations already given, and their manifestation that in transferring money she was performing a menial and usual task, which sometimes others would perform, and doubtless would here were she unavailable; the £600,000 was a larger transaction than usual, but she would not think of questioning her bosses as to why she was being asked to make the transfer, as she had no part in strategy and the businesses were theirs, not hers. She also knew, like every other employee, about the intended merger and rebranding. Her assistance in Mr Freed’s scheme was trifling.[229]In those circumstances, and given her role, I do not consider it was dishonest, in the Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378 sense, of Ms Thompson not to ask questions. During the periods she was a director of JRG, KP and Achieva Group it was certainly a breach of her fiduciary duties not to ask, but the imposition of those is, without more, irrelevant. She was simply performing her tasks as she had ever done. Mr Carter also asks what motive she would have to behave dishonestly? She had no financial interest in any of the companies; nor stood to make any financial gain; and any motive of being pleased to do as bidden by Mr Freed does not render her acts dishonest.[230]It follows that the case against Ms Thompson must be dismissed.

Conclusions

[231]The Claim fails.[232]The Petitioners were unfairly prejudiced in the ignoring by Mark Atherton, Mr Donovan and Mr Freed of the Sherrards advice. They were also unfairly prejudiced by Mr Freed’s dishonest amending of the 2019 accounts in July 2020, and causing the December payments; with a view to contriving the insolvency of JRG and taking over its business through Achieva Group.[233]Otherwise, the Petitioners’ claims fail.[234]What relief ought to be ordered on the Petition, and against whom, will be subject to a further hearing, for which directions will be given at the consequentials hearing.