There is such a thing as bad publicity
AMT Coffee Limited was incorporated in 1993 and the initial shareholders were a father, mother and three sons, all of whom were A McCallum-Toppin, namely father Alexander, wife Anna and three sons, Angus, Allan and Alistair.
The focus of the company was on the retailing of hot coffee from stalls at railway stations and other venues.
The television experience
In 2002 the three brothers took part in a BBC television programme presented by the businessman Gerry Robinson, called 'I'll show them who's boss'. One of the parties described this programme as 'disastrous'. It presented the three brothers as dysfunctional and unable to work together in the company which they had created.
After the death of the father, Angus died prematurely; the section 994 claim was brought by his widow on the basis that the remaining brothers paid themselves excessive remuneration, had very substantial overdrawn loan accounts and did not arrange for the payment of dividends.
From late 2007 onwards there were discussions with various potential buyers for a sale of the entire share capital for prices close to £20m but none of these came to fruition.
Palace coups and power struggles
There were various disputes between Allan and Alistair as to the operations of the company. Due in part to the very large amounts borrowed from the company by the two brothers, the company faced a cash flow crisis in 2008 and one of the brothers was removed from his role as managing director.
This was followed by a further boardroom coup in 2009 and further removals and replacements of managing directors.
These disputes led to claims before the Employment Tribunal and other litigation: there were various section 994 actions between the brothers as they continued to fall out.
The overdrawn balances and the remuneration
The two surviving brothers continued to withdraw funds from the company on loan account: at the end of 2015 the total sums owing were in excess of £1m, with no real prospect of repayment by either brother.
At this time the two brothers were also being paid remuneration of some £450,000 a year each.
In order to give a context, the written decision gave details of the company’s fortunes: in 2014 the sales were £19.5m and the profits £430,000; in 2015 the sales increased modestly to £19.7m and the profits were £290,000. However, in 2016 the sales were £20.3m but a loss of £990,000 was incurred.
The widow’s case
In order to bring a claim under section 994, the widow of Angus needed to demonstrate that the remuneration of the two brothers was excessive.
There were three experts who gave evidence with regard to reasonable remuneration. The written decision gives a brief summary of the methods applied by each of them. Perhaps surprisingly, the judge concluded:
'I cannot rely on any of the expert evidence tendered, and…none of it is admissible.
However, the judge went on to state that the court could still determine what the fair level of remuneration was.
Failing to declare or failing to consider?
It was one of the findings of the judge that the directors had never dealt with the question of dividends properly: the argument that they had made positive decisions to concentrate on the growth of the business was described as 'window-dressing after the event'. He concluded his views by stating:
'I therefore find that none of the three directors made a bona fide decision not to declare dividends. All three of them failed properly to consider whether to do so.'
New grounds?
Those of us actively engaged in shareholder dispute cases will be aware that decisions in this area have been evolving: two relatively recent cases, Sunrise Radio ([2010] BCLC 367) and Blue Index ([2014] EWHC 2680), have ordered that no discounts should be applied despite the fact that the relations of the parties were not those of quasi-partnership. The over-arching consideration has been that of fairness: justice is not seen to be served if wrongdoers benefit from their actions by purchasing shares at discounted prices.
This is a trend which has been continued in this case: the judge gave his reasons:
'A sale at a discounted value would present an undeserved windfall to the purchasing respondents. Now this Company, like all companies limited by shares, belonged to its shareholders. In these circumstances, I consider that nothing less than a sale and purchase of the shares at an undiscounted valuation will do justice, and amount to a 'fair price'.
Cliff-hanger
It is disappointing that there the Decision ends: we do not yet know the decisions as to remuneration; nor do we have an insight into the business valuation approaches and methods adopted.
This case can be contrasted with the case of Booth and Booth, another shareholder dispute involving a family company. This is the subject of the next article.
Andrew Strickland
