Duneau v Klimt Invest SA & Ors [2022] EWHC 596 (Ch)

In Duneau v Klimt Invest SA & Ors [2022] EWHC 596 (Ch), Charlie Newington -Bridges acted for the Respondent in the High Court trial of a just and equitable winding up petition relating to a French stock market listed technology company worth €9m. Daniel Lightman QC acted for the Petitioner. The 8-day trial was heard by HHJ Cawson QC in the Rolls Building. The just and equitable winding up petition had a series of unusual features, which may interest company law practitioners.

The background to the dispute was complex, but in essence a technology company based on cloning software had been established in France by three men, who were all shareholders in the Company. The Company had been successful and it was listed on the Alternext stock exchange in Paris. A bid was made for the assets of the Company, but not the shares, by a Canadian private equity company. The bid was agreed and the assets of the company were sold to the private equity company. In terms of assets and liabilities, this left the listing of the Company, c. €9m in cash on the balance of the Company as well as two potential claims (one against and one to be made by the Company). The Petitioner, supported by one of the other original shareholder/founders, sought the just and equitable winding up of the Company. There were five grounds on which this remedy was sought.

The first was that the purpose or of the Company had been achieved or that it had lost its substratum and therefore the Company should be wound up on the just and equitable basis. It was argued on behalf of the Respondent that the company had become a technology investment holding company and it should be allowed to invest in technology companies again. HHJ Cawson QC  found on the facts that the Company had lost its substratum and he was prepared to wind up on the just and equitable basis on this ground alone.

The second was that assurances were purportedly given by the chief executive and largest shareholder to the petitioning minority shareholder that the Company would be wound up. It was held on the facts that no such assurances were given.

The third was that the Petitioner had been removed from the board in breach of an understanding or agreement. In the is respect, the petition pleaded that the Company in question, Klimtinvest PLC, was a quasi-partnership. It is unclear whether as a matter of law a public company can be a quasi-partnership. HHJ Cawson QC declined to make a finding on whether the leading case, Re Astec, on this point was correctly decided, but he did find on the facts and in particular where a series of shareholder agreements and service contracts governed the relationship of the Petitioner with the Company and the First Respondent, a quasi-partnership had not arisen. HHJ Cawson QC therefore declined to find that the removal of the Petitioner from the board was in breach of any understanding or agreement

The fourth was that Company was founded on the basis of a personal relationship of trust and confidence between the Petitioner and First Respondent which had broken down. In light of his findings that this was not a ‘legitimate expectation’ or quasi-partnership case, the learned judge found against the Petitioner on the point.

The fifth was loss of confidence in the management of the Company. This was not pleaded, but was dealt with by the court. It was noted that the authorities suggest that mere lack of confidence on the part of the petitioner in those who have conducted the company’s management is not itself a ground for relief, at least unless the petitioner can demonstrate a lack of confidence which stems from a lack of probity on the part of the directors. No such lack of probity finding was made.

An alternative remedy may have existed for the Petitioner in that the Respondent had made an offer to buy out his shares. This offer had been framed as a purchase at ‘market value’. Unfortunately, the offer was held not fulfil the O’Neill v Phillips criteria for a reasonable offer in these circumstances because it was not one for ‘fair value’ and did not make clear that no minority discount would be applied to any buy out valuation.

The judgment is an interesting one in that it reviews the authorities in some detail on loss of purpose or substratum and whether or not a quasi-partnership can exist in the circumstances of a public listed company. On the former, the findings are necessarily fact sensitive, but the case stands as a helpful guide to the principles on that point. On the latter, the question remains whether as a matter of law a public company can be a quasi-partnership. At a minimum it may be said that it remains a rare case in which such a finding will be made.