Stainer v Lee & Ors [2010] EWHC 1539 (Ch) (29 June 2010)

Stainer v Lee & Ors [2010] EWHC 1539 (Ch) (29 June 2010)

There is a strong arguable case that the directors breached their fiduciary duties by making interest-free and unauthorised loans to Eldington. The subsequent payment of interest and the new loan agreement do not conclusively remedy or ratify the breaches, as shareholder approval was not sufficiently informed. It cannot be said that no director acting in accordance with s.172 would continue the claim. Permission to continue the derivative claim is granted, limited to the conclusion of disclosure, with a costs indemnity subject to a cap.

Citation
[2010] EWHC 1539 (Ch)
Parties
Applicant: Robin Stainer; First Respondent: Gerard Alan Lee; Second Respondent: Enrique Elliott; Third Respondent: Eldington Holdings Limited
Jurisdiction
England and Wales
Judgment Date
29 June 2010
Procedural Posture
Derivative Claim (companies Act 2006, S.261) / Application for Permission to Continue Derivative Claim (substantive Hearing Under S.261(4))
Outcome
Permission granted for derivative claim to continue, limited to conclusion of disclosure; costs indemnity granted subject to cap.
Legal Topics
Derivative Actions, Directors' Duties, Breach of Fiduciary Duty, Ratification of Director Conduct, Constructive Trusts, Minority Shareholder Protection
Company Law Corporate Governance Derivative Actions Directors' Duties Breach of Fiduciary Duty Ratification of Director Conduct Constructive Trusts Minority Shareholder Protection

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Parties

Robin Stainer

Applicant

Gerard Alan Lee

First Respondent

Enrique Elliott

Second Respondent

Eldington Holdings Limited

Third Respondent

Procedural Posture

Derivative Claim (companies Act 2006, S.261) / Application for Permission to Continue Derivative Claim (substantive Hearing Under S.261(4))

Legal Issues

  1. 1 Whether directors breached fiduciary duties by lending company funds to Eldington Holdings Limited on interest-free terms and by making additional unauthorised loans; whether such breaches are ratified or remedied by subsequent shareholder approval and new loan agreement; whether permission should be granted to continue derivative proceedings under Companies Act 2006, s.261-263.

Ratio Decidendi

There is a strong arguable case that the directors breached their fiduciary duties by making interest-free and unauthorised loans to Eldington. The subsequent payment of interest and the new loan agreement do not conclusively remedy or ratify the breaches, as shareholder approval was not sufficiently informed. It cannot be said that no director acting in accordance with s.172 would continue the claim. Permission to continue the derivative claim is granted, limited to the conclusion of disclosure, with a costs indemnity subject to a cap.

Court Disposition

Permission granted for derivative claim to continue, limited to conclusion of disclosure; costs indemnity granted subject to cap.

Orders

  • Permission to continue derivative claim limited to conclusion of disclosure; further permission required thereafter.
  • Applicant to be indemnified by the company for reasonable costs up to £40,000 (exclusive of VAT), with liberty to apply for extension.