Gibbins v Tierney – Director/Shareholder Excluded from a Quasi-Partnership

Sally Ann Gibbins started a cosmetics business in Birmingham in December 2010. She ran it as a partnership with her son, John Tierney, and his partner, Rose Brown. The three of them agreed, orally, that they would all help manage the business. Ms Gibbins would look after the finances but each of them would hold an equal share.

The partnership became a company in June 2011. Ms Gibbins, Mr Tierney and Ms Brown each held one of the company’s three shares. This arrangement made the company a quasi-partnership. Ms Gibbins had put in most of the money. She cashed in a private pension and took out a mortgage to fund the business. Mr Tierney and Ms Brown put in no capital at all.

For more information on Gibbins v Tierney & Ors [2024] EWHC 2004 (Ch), please read the full case.

The Dispute

In 2019, Mr Tierney and Ms Brown found a house in Brighton and wanted to buy it as their home. Rather than fund the purchase themselves, they wanted to use the company’s money.

Ms Gibbins objected but Mr Tierney pressured her. He became very vocal over the phone and told her she should agree because she was his mother. He reminded her that he and Ms Brown held the majority of the shares and could do as they pleased.

Ms Gibbins eventually agreed, but only on the basis that the money would be repaid within a reasonable time. The company borrowed £250,000 from Funding Circle and also handed over £325,000 of its own cash. Both sums went to a company set up and controlled by Mr Tierney and Ms Brown, which used the money to buy the house. They then used further company funds to pay stamp duty, legal fees, and the cost of renovating the property. They did not ask Ms Gibbins first.

By early 2020, it was clear the loan was not being repaid at any meaningful pace. At the rate Mr Tierney and Ms Brown proposed, it would have taken sixteen years to clear the debt. When they suggested using yet more company money to pay off the Funding Circle loan, Ms Gibbins refused. She moved the company’s remaining funds into a new bank account to protect them.

Mr Tierney and Ms Brown responded by freezing the company’s original account and removing Ms Gibbins from the bank mandate. They repaid the Funding Circle loan in full without her consent. From August 2020 onwards, Ms Gibbins had no access to the company’s accounts and no visibility over its finances.

They also set up a new company that manufactured and sold the same kind of products.

In September 2020, Mr Tierney and Ms Brown called a meeting to remove Ms Gibbins as a director and dismiss her as an employee. The meeting never went ahead, but the effect was the same. From August 2020, Ms Gibbins was shut out of the business entirely.

The Petition

Ms Gibbins presented an unfair prejudice petition under section 994 of the Companies Act 2006 in June 2022. Mr Tierney and Ms Brown took no part in the proceedings. They were eventually barred from defending the petition after they ignored a disclosure order. They failed to file the company’s statutory accounts, which meant the case came before the court undefended.

The Decision

ICC Judge Barber found that the petition was well founded. The company was a quasi-partnership and Mr Tierney and Ms Brown had wrongfully excluded Ms Gibbins from the business. They had used company funds for their own benefit and diverted the company’s business elsewhere. In doing so, they breached their duties as directors under sections 172 to 175 of the Companies Act 2006: to promote the success of the company, to exercise independent judgment, to exercise reasonable care and skill, and to avoid conflicts of interest.

The judge ordered Mr Tierney and Ms Brown to buy Ms Gibbins’s shares at fair value. She rejected the usual starting point that shares should be valued on the date of the order. Instead, she picked 1 August 2020, the point just before the wrongful conduct began. This followed the established principle that where a company has been stripped of its business or assets through unfairly prejudicial conduct, an earlier valuation date may be needed to do justice to the petitioner.

The judge also ruled that no minority discount should apply. This reflected the long-standing rule that a shareholder unfairly excluded from a quasi-partnership should not have the value of their stake reduced simply because they held a minority of the shares.

Mr Tierney and Ms Brown were ordered to pay the costs of the petition, with £37,500 payable on account pending detailed assessment.

Why This Case Matters

This case is a perfect example of two important principles in unfair prejudice law.

First, courts will depart from the default valuation date where a company has been drained of its assets or business by the respondents’ own misconduct. Valuing the shares on the date of the order would have rewarded Mr Tierney and Ms Brown for the very harm they caused.

Second, quasi-partnership status changes the valuation exercise. Where shareholders have been directors as well and closely involved in the running of the company on the basis of mutual trust and equal participation, the valuation of their shares should not be subject to a discount simply because it is a minority shareholding.