Oviedo LTD v Companies Acts 2014-2020 (Approved)

Factual and Procedural Background

The applicant, a Luxembourg-registered company holding 33.63% of the shares in Company A, initiated proceedings under section 212 of the Companies Act, 2014, seeking an interlocutory injunction restraining Company A and its board members from disposing of company assets pending the determination of the case. The contested assets include development sites located at The City, County Dublin, advertised for sale in April and May 2021. The applicant alleges that the board has failed to maximize shareholder value by neglecting to consider or obtain independent expert advice on whether selling the business as a going concern would yield better value than piecemeal asset disposals. The applicant contends that the board has not procured or made available independent valuations to shareholders.

Company A was established in late 2020 as a continuation of a prior business operated by a separate entity, Company B, involving the same shareholders and board members. Company B had been engaged in an asset disposal programme since 2018, which was opposed by certain shareholders who formed the applicant company to resist a proposal favoring a particular shareholder's acquisition of assets. Resolutions proposed by the applicant at an extraordinary general meeting of Company B in October 2020, including one requiring independent valuations of assets, were rejected by a majority of shareholders.

Following this, Company B proposed a restructuring transferring its operating business and assets to Company A, which was approved by a majority of shareholders in December 2020. The board of Company A proceeded with an asset disposal programme, primarily selling undeveloped assets on a piecemeal basis, supported by advice from a valuation expert who recommended individual asset sales rather than a portfolio disposal. The applicant made an offer to acquire the assets subject to due diligence, which was considered but ultimately not accepted by the board.

Prior to the proceedings, extensive correspondence and negotiations occurred between the parties, including proposals for mediation and requests for undertakings not to proceed with asset disposals pending resolution. Despite these efforts, the applicant commenced proceedings in May 2021 and subsequently sought interlocutory relief.

Legal Issues Presented

1. Whether the applicant has established a fair question to be tried that the conduct of the board and Company A amounts to oppression or disregard of the applicant’s interests under section 212 of the Companies Act, 2014.
2. Whether the rule in Foss v. Harbottle bars the applicant’s claim given that the alleged wrongs relate to decisions made by the company’s board and majority shareholders.
3. The adequacy of damages as a remedy versus the need for interlocutory injunctive relief to prevent irreparable harm.
4. The appropriate test and principles governing the grant of interlocutory injunctions in commercial disputes involving oppression claims.
5. Whether the applicant’s delay in seeking interlocutory relief affects the balance of convenience.

Arguments of the Parties

Applicant's Arguments

• The board and Company A have failed to seek or consider independent expert advice on whether selling the business as a going concern would yield better value than piecemeal asset sales.
• The ongoing disposal of undeveloped assets without such advice causes irreparable harm that cannot be adequately compensated by damages.
• There is a real risk that the applicant’s claim will become moot if asset sales proceed pending trial.
• The applicant’s case is supported by expert evidence from corporate finance and valuation experts highlighting potential value loss and tax disadvantages from asset disposals.
• The applicant contends that serious mismanagement can constitute oppression under section 212 and that the failure to obtain appropriate advice may amount to such mismanagement.
• The applicant asserts that interlocutory relief is necessary to maintain the status quo and protect shareholder value pending trial.

Company A and Director Respondents' Arguments

• The claim is essentially a commercial disagreement with the board’s business judgment, which does not constitute oppression under section 212.
• The asset disposal programme was approved by a majority of shareholders, reflecting corporate democracy and binding the company.
• The rule in Foss v. Harbottle applies, barring the applicant from pursuing claims that are properly those of the company, absent exceptions which do not apply here.
• The board has acted on expert advice recommending piecemeal asset sales as the best way to maximize value, and no evidence suggests serious mismanagement.
• Damages constitute an adequate remedy, and the balance of convenience weighs against granting an interlocutory injunction.
• The applicant has unduly delayed in seeking interlocutory relief despite early knowledge of the disposal programme, undermining any claim of urgency.
• The relief sought is prohibitory but has mandatory effects by restraining a shareholder-approved strategy, requiring a strong case to succeed.

Table of Precedents Cited

Court's Reasoning and Analysis

The court began by framing the relief sought as a prohibitory injunction restraining Company A and its board from continuing asset disposals pending trial. Although the relief would significantly impact the company’s operations, it remains prohibitory in nature, and the traditional test for interlocutory injunctions applies as articulated in Merck Sharp & Dohme Corporation v. Clonmel Healthcare Ltd.

The court considered whether a permanent injunction might be granted if the applicant succeeded at trial and found it doubtful but not impossible, especially if serious mismanagement were established. The court then examined whether the applicant had shown a fair issue to be tried. It acknowledged the respondents’ reliance on the rule in Foss v. Harbottle and the Supreme Court’s decision in Re Via Net Works, which generally bar shareholder claims for wrongs done to the company. However, the court found arguable scope for the applicant to contest this at trial, noting some conflicting dicta and the overriding nature of section 212.

Regarding the substance of the oppression claim, the court noted the high threshold for serious mismanagement sufficient to amount to oppression. While the respondents presented strong evidence that the board acted on expert advice and with shareholder approval, the applicant’s evidence from corporate finance and valuation experts raised a plausible argument that the board failed to obtain advice on the alternative of selling the company as a going concern, which could constitute serious mismanagement. The court emphasized that this was an interlocutory stage and no final conclusion was reached.

In assessing the balance of convenience, the court recognized that damages may not be a perfect remedy due to difficulties in valuation and the interconnected nature of the assets and business. Expert evidence suggested that piecemeal disposals could cause irreparable harm by undermining the value of the company as a going concern. Nevertheless, the court found that damages would be an adequate remedy in principle, as valuation evidence is routinely considered by courts, and the difficulties are not insurmountable.

The court also weighed the consequences of granting an injunction, which would delay the asset disposal programme endorsed by a majority of shareholders, potentially causing reputational damage and financial loss to them. The applicant’s delay in seeking interlocutory relief, despite early knowledge of the disposal strategy and asset sales, further weighed against granting an injunction.

Ultimately, the court concluded that the balance of justice and convenience favored refusing the interlocutory injunction. The applicant had not demonstrated sufficient urgency or a strong case to justify restraining a shareholder-approved commercial strategy pending trial.

Holding and Implications

The court REFUSED the application for an interlocutory injunction restraining Company A and its board from proceeding with the disposal of assets pending trial.

The decision means that the asset disposal programme, approved by a majority of shareholders, may continue until the substantive proceedings are determined. The court recognized that damages remain an available remedy for the applicant, and the refusal of interlocutory relief does not preclude the applicant from pursuing its claims at trial. No new precedent was established, and the ruling primarily reflects the application of established principles regarding interlocutory injunctions, shareholder standing, and the high threshold for oppression claims based on management decisions.