Radical without notice injunction changing the board of a company upheld in Garofalo v Crisp; Re Valorem Holdings Ltd [2024] EWHC 1737 (ChD)

James Bailey KC and Jessica Brooke, instructed by Olephant Solicitors, appeared for the applicant.

The decision in Re Valorem Holdings Ltd represents a groundbreaking development in the nature of injunctive relief that the court is prepared to grant to protect the rights of minority shareholders in s.994 petitions. In this case, the court not only changed the constitution of the board by way of interim relief to remove the respondent to the petition (the CEO) from the board and install the petitioner’s management team as directors, it did so on a without notice application. The effect of this was the respondent, who had a contractual entitlement to act as sole executive director, was removed from office without even having the opportunity to address the court.

It should be noted that the facts of the case were truly remarkable, and it is not suggested that such relief would ever ordinarily be available. However the decision serves to enforce the ongoing trend seen in injunctive relief as a whole that the court will do what is necessary on the facts of the case. More extreme wrongdoing may require more intrusive relief.

In this case, the respondent director was alleged to have caused the company to trade with Russia in breach of sanctions in a manner that would amount to a criminal offence. Whereas other complaints were made about his actions, some of which were very serious and extended beyond “mere” breaches of fiduciary duty, the concern was that the company might face a reputational and existential threat. It was on this basis that a vast array of injunctive relief was sought (including both Anton Piller relief and a passport order, as adjuncts to the order changing the board) and obtained without notice in October 2023. Unusually, the without notice judgment was reported (Re Valorem Holdings [2004] B.C.C. 1). As it happened, the non-resident respondent was in fact arrested at the airport the following day when he arrived in England.

At the return date, which took place some 7 months after the without notice hearing, the Respondent opposed the injunction, contending not only that no injunction should be granted on the return date, but that it was wrong to have granted the relief sought in the first place.

The court was faced with some 30 affidavits and witness statements, and substantial material going to how the company had been operated both before and after the replacement of the board. The court held that the correct test was to apply a variation to the American Cyanamid test, with a far higher standard than “a serious issue to be tried” to be applied. The court considered that the correct threshold for the relief sought was “a strong prima facie case”, albeit the judge at the without notice hearing had found the applicant had “an extremely strong prima facie case” for the purposes of the Anton Piller relief. An important factor in this case was that the petitioner sought an order buying out (rather than selling his shares to) the respondent, such that the interim relief sought would put him in the position that he contended he would be in upon a successful outcome at trial.

Whereas there are English and Commonwealth decisions which vary the management of companies at the conclusion of s.994 petitions (or their equivalent), it is believed this is the first time such relief has been granted without notice at an interim stage (albeit it is suggested that this was wholly justified on the extraordinary facts of this case).

Read the full judgment here