Few unfair prejudice cases illustrate the sheer breadth of the court’s remedial power under section 996 of the Companies Act 2006 as clearly as the Court of Appeal’s decision in Thomas v Dawson.
The company, Invicta Care Homes Ltd, was a classic quasi-partnership. Mr Thomas and Ms Dawson, once a couple, each held 50% of the shares and were the only directors. They ran a residential care home in Wales that was heavily geared but operationally viable. When the personal relationship ended in 2009, the business relationship rapidly followed suit.
What followed was textbook deadlock behaviour notably a series of “tit-for-tat withdrawals” from the Company accounts, restrictions on access to the Company accounts and failures to pay salary. Thomas issued an unfair prejudice petition under section 994. The trial judge found unfair prejudice proved and, exercising his section 996 powers, granted Thomas an option to purchase Dawson’s share for c. £50,000. This was striking because a jointly instructed expert had valued Dawson’s share at precisely nil on a balance-sheet basis, given the company’s negative net assets.
Thomas appealed the decision on the basis that the expert’s report had valued Dawson’s share at £nil, and so he had been subjected to procedural unfairness.
The Court of Appeal dismissed the appeal with little hesitation, reaffirming that section 996 confers an “absolute discretion” on the court to make such order as it thinks fit for giving relief, provided the order is designed to put right the unfair prejudice. The court is not bound by expert evidence on valuation, nor by conventional valuation methodologies, if a different solution is fairer in all the circumstances.
Crucially, the judge at first instance had not rejected the expert evidence; he had simply concluded that a nil valuation would not fairly reflect the reality of a going-concern business that Thomas was willing and able to continue running, essentially the business was still commercially viable.
Further if Mr Thomas exercised his option to purchase the share, then Ms Dawson would effectively lose the benefits of holding such share, thus it was just and equitable for her to be compensated for the loss of that share.
The Court of Appeal held that the judge’s decision at first instance was well within their wide discretion and entirely in line with long-standing authority such as Re Bird Precision Bellows Ltd.
The practical takeaways are sharp:
- In quasi-partnerships, the breakdown of mutual trust is usually enough to establish unfair prejudice, even without clear “fault”.
- Courts will prioritise workable, commercial outcomes over rigid adherence to accounting valuations.
- Creative remedies – such as one-way options or prices divorced from strict market value – are permissible and may even be preferred.
- Parties who push deadlocked companies into litigation should expect unpredictable but pragmatic judicial solutions rather than formulaic results.
Thomas v Dawson is a powerful reminder that, when it comes to section 996 relief, equity and commercial common sense will almost always beat accountancy purity.
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