In VB Football Assets -v- Blackpool Football Club (Properties) Limited (formerly Segesta Limited) & Others  EWHC 2767 (Ch), the High Court ordered that the majority shareholder of Blackpool Football Club Limited (Blackpool FC) purchase the minority shareholder's entire interest in the company, following the minority shareholder's successful petition alleging unfair prejudice.
The case serves as a reminder of the court's ability, in respect of private companies, to consider not only the shareholder's strict legal rights under the contractual agreements, but also any non-contractual arrangements that may exist between the shareholders when determining whether the minority shareholder has been unfairly prejudiced by the majority shareholder's acts and/or omissions.
In summary, Blackpool Football Club (Properties) Limited (referred to as Segesta in the judgment and in this summary) is the majority shareholder of Blackpool FC. Mr Owen Oyston is Segesta's majority shareholder. On 5 June 2006, VB Football Assets, which at the time was 100 per cent owned by Mr Belokon, acquired a 20 per cent interest in Blackpool FC pursuant to a Subscription Agreement. In 2006 and 2007, Ms Belokon (Mr Belokon's daughter) entered into two written agreements with Segesta under which Ms Belokon lent money to Segesta. According to Mr Belokon, these agreements were entered into on the understanding that they did not constitute the entire arrangement as between the parties and that VB Football Assets (1) in due course, would receive an equal shareholding as that of Segesta in Blackpool FC and until such time, (2) would jointly manage Blackpool FC alongside Segesta. Marcus Smith J concluded that the written agreements deliberately did not set out the full arrangement as between the parties. He took the above non-contractual arrangements, as well as the legal agreements themselves, into consideration when determining whether VB Football Assets had suffered unfair prejudice, stating that "The interests of a member are not limited to his strict legal rights under the constitution of the company". The court may have regard to the "wider equitable considerations".
Blackpool FC was promoted to the Premier League for the season 2010 to 2011 and received approximately £43 million for its promotion (a vast amount of money in comparison to what it had previously received in the Championship). Until Blackpool FC's promotion to the Premier League, as far as Mr Belokon was concerned, the relationship between Segesta and VB Football Assets was "harmonious". However, following Blackpool FC's promotion the relationship deteriorated and in 2015 VB Football Assets issued a petition for unfair prejudice.
To bring a successful petition for unfair prejudice under section 994 of the Companies Act 2006 (CA 2006), VB Football Assets had to show:
" i) That it has standing to petition i.e. it is a member of Blackpool FC.
ii) That the acts or omission of which it complains consist of the management of the affairs of Blackpool FC.
iii) That the conduct of those affairs has caused prejudice to its interests as a member of Blackpool FC.
iv) That the prejudice is unfair".
VB Football Assets alleged the following:
- Segesta made substantial improper payments out of Blackpool FC, without the consent of VB Football Assets. These payments "and/or were for the personal benefit of Mr. Owen Oyston and/or Mr. Karl Oyston".
- Segesta excluded VB Football Assets from decisions made, and material information, regarding Blackpool FC.
- In 2014, the board of Blackpool FC adopted amended articles of association, despite the objections of VB Football Assets.
Marcus Smith J held that these three allegations amounted to "acts" or "omissions" of Blackpool FC for the purpose of section 994 of the CA 2006 and also related to the conduct of Blackpool FC's "affairs". In determining whether these acts and omissions were prejudicially unfair to VB Football Assets, the court concluded that in relation to the first allegation, these payments were in fact "disguised dividends" to Mr Owen Oyston from which the minority shareholders did not benefit. As such, these payments were unfair. The payments "were unjustifiable in that they cannot have been for the benefit of Blackpool FC, but were for the benefit" of Segesta (and accordingly, Mr Owen Oyston). In respect of the second allegation, due to the noncontractual arrangement between the parties, the court held that "VB Football Assets had a legitimate expectation to be treated as an equal partner in the governance of Blackpool FC" and was "excluded from decisions concerning Blackpool FC where the Oyston side anticipated" that VB Football Assets would disagree. However, the court did not find that VB Football Assets was unfairly prejudiced in respect of the third allegation.
As regards the relief due to VB Football Assets under section 996 of the CA 2006, the court "is not bound by the relief sought by the Petitioner" and "the remedy must be proportionate to the unfair prejudice found". Marcus Smith J considered the proportionality of an order for a buy-out. In order to do so, he had to first determine the fair price of VB Football Assets' interest in Blackpool FC. The parties' experts used different valuation methods and their valuations varied significantly. VB Football Asset's expert valued VB Football Assets' interest in Blackpool FC at £59.7 million and Segesta valued it at £5.5 million.
Marcus Smith J determined the fair price of VB Football Assets' interest on the basis that VB Football Assets had a legitimate expectation to share jointly in the profits of Blackpool FC and would have had, at some point, an equal shareholding to that of Segesta. He also found that the disguised dividends (amounting to £26.77 million) that Segesta caused Blackpool FC to make should also have been made equally to VB Football Assets (on the basis that Segesta should have behaved in a non-discriminatory manner when dealing with Blackpool FC's affairs). It was found that Mr Belokon should also have returned to him the amount he paid to acquire his interest in Blackpool FC (£4.5 million, being the total amount that either Ms Belokon or VB Football Assets paid/lent under the three written agreements). Marcus Smith J also considered the appropriateness of remedies other than a buy-out, such as a bespoke arrangement between Mr Belokon and Mr Owen Oyston. However, he determined that a buyout order for £31.27 million was ultimately the only appropriate form of relief and one that created a "clean break".
The case serves as a useful example of a minority shareholder's successful petition for unfair prejudice. The case also highlights the court's discretion in determining the appropriate form of relief under section 996 of the CA 2006 and shows that the court will, in relation to private companies, not only consider the parties strict legal rights, but also any non-contractual arrangements between the parties when determining whether a minority shareholder has suffered from unfair prejudice.
The full text of the judgment is available at https://www.judiciary.gov.uk/judgments/vbfa-v-blackpool-fcproperties-ltd-ors/.