Couples in company law dispute over development project

Couples embroiled in company law battle over development project. Court drama unfolds as Majority's property transfer sparks legal firestorm. Court of Appeal overturns ruling, signalling a showdown in a full trial. Informal ops shed light on need for formal protocols.

Informal business arrangements often lead to legal disputes when disagreements arise, as in a recent case before the Court of Appeal. It involved two couples who set up a property development company. One couple held a 51% stake (the Majority) and the other couple owned 49% (the Minority). All four served as directors.

The company acquired a piece of land to build 12 houses. However, after planning permission had been granted, the Majority transferred the property to a separate company owned by one of them. They paid the same price that the land had cost before planning permission was granted. The Minority took legal action, claiming that the Majority had breached their fiduciary duties as directors by transferring the property for their personal gain. The Majority contended that they had invited the Minority to contribute to the development's funding, but they had declined. This meant they had effectively authorised the transfer and therefore there was no conflict of interest to warrant a breach of company law.

The court dismissed the Majority’s arguments, finding no credible grounds for defence. The judge issued summary judgment in favour of the Minority, bypassing a full trial. The Court of Appeal overturned that decision. It held that if the Minority had declined to pursue the development through the company and permitted the Majority Shareholders to proceed independently, that could be seen as providing the requisite authorisation under company law to avoid a breach of directors’ duties. This doesn’t mean that the Court of Appeal ruled that the Majority did not breach their duties, merely that the issue could not be decided summarily by a judge and would have to go to a full trial if the parties decided to continue their action.

The Appeal Judges said the informal nature of the company's operations meant that if the case went to trial, a judge might well conclude that the Minority were aware of the property transfer and had accepted it because they did not wish to proceed themselves. The situation would have been much clearer if both sets of directors had held formal meetings and kept written records of important decisions.

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