Introduction

That sadness is certainly no less when it is a family being torn apart by the bitterness of long remembered grievances. When the family has as rich a history as in this case, there is even greater cause for dismay.

Helmut Michel was born in Germany of Jewish parents; following the advice of a far-seeing uncle, Leopold Kahn, and furnished with a loan from him of £400, he escaped the horrors of the Shoah which were to overwhelm Germany’s Jewish community, by moving to the UK in 1931. In 1932 he set up a business in London which manufactured cosmetic applicator products. The business was named after Helmut’s uncle.

Helmut’s desire to signal his gratitude to his uncle was such that he named his daughter Caressa, the name of his uncle’s business in Germany. Helmut also had one adopted and three natural sons.
The business grew over the years, under the leadership of Helmut who is described in the Written Decision:

“Helmut was an inspiration to all: His high energy and ideas made him an obvious leader in the Company, assuming control of sales, dealing with the finances and business strategy. Andrew described him as a visionary. Richard said he was motivated by hard work, a desire to treat employees fairly and family.”

The Judge considered that, by measuring themselves against Helmut, each family member felt they fell short.

The Petition

Andrew, the youngest of Helmut’s sons, brought an action under the provisions of section 994, Companies Act 2006 relating to unfairly prejudicial conduct in 2016. He sought an Order that his shares should be purchased at fair value, with no discount being applied. By this time the company employed 70 people in Hatfield; it also had operations in China.

The main grounds for the petition were that Andrew ceased being paid by the company in 2015. He had not worked for the company since 2006 but maintained that an agreement had been made that he should continue as a director and should continue to receive remuneration as long as he remained as a shareholder.

Other family members stated that there was no such agreement; his employment was terminated at age 65, as agreed, as this was when he would be entitled to his pension.

The Ascent of Generation Two

Following the death of Helmut, the leadership of the business was assumed by two of the next generation, Aubrey and Caressa. Andrew’s role was very much subsidiary to that of these two of his siblings and this may have sown the initial seeds of resentment.

There was impressive evidence given that Caressa was an extremely able, steadying influence on the business and the family, being described as “the rock of the business”. Her untimely death from cancer considerably weakened the management team.

Andrew was responsible for the finance function; concerns were expressed as to his commitment and competence in this role. Andrew was accused of "totally unacceptable management performance". The finance function was moved from London to Hatfield in order to exercise better control. This move required Andrew to travel from London to Hatfield each day. Natural sibling rivalry became sharpened into conflict with this decision.

Family Companies and Quasi-Partnerships

Family companies are a major subset of section 994 cases; when exploring if the relationships are those of quasi-partnership, different considerations apply. It can be difficult to discern what is meant by mutual trust and confidence within a family when relationships can all too often be those of mutual loathing. In the case of Shah v Shah the Judge had no difficulty in deciding that four brothers formed a quasi-partnership, albeit a dysfunctional one. In the case of Brand and Harding, three sisters were similarly considered to be quasi-partners, as they were all directors.

Against that are the more recent cases of Estera Trust v Singh and Dinglis v Dinglis in which it was found that quasi-partnerships did not exist within family companies. In the case of Waldron v Waldron the Judge did not want to be held captive by the concept: whether or not a discount should be applied was to be determined by reference to the conduct of the parties.
The Judge in Dinglis and Dinglis made the point that not all family companies are quasi-partnerships. This was also accepted by the parties in this case.

Decisions of the Courts are inevitably complex and nuanced. We can all recognise that they each turn on their own factual matrices.

The Decision

The Judge did not find Andrew to be a good witness: he found that the evidence, taken as a whole, mostly contradicted Andrew’s version of events.

Aubrey had left the company in 1999; his shares had been subsequently bought back by the company and a discount had been applied. The terms had been negotiated by Andrew with Aubrey. This was a pivotal issue. The Judge stated:

“In my judgment the treatment given by the parties to the buy-back of Aubrey's shares is an indicator (but not the sole indicator) that the relationship did not have the character of a quasi-partnership.”
The petition brought by Andrew failed. The Judge gave his reasons:

“I have found that Andrew had no right to be a director in 1999. He became a director by reason of the rules pertaining to corporate democracy. As Andrew had no right to be a director, and the members were not constrained by equitable considerations, his removal in accordance with the Company's constitution was neither unfair nor prejudicial.” 

Andrew Strickland, Consultant, Scrutton Bland