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Judgment handed down in Compound Photonics Group shareholders dispute

Posted on 31 March 2021

Today, following a four week trial in November/December 2020, judgment has been handed down in a dispute between the minority and majority shareholders in Compound Photonics Group Limited (''Compound'').

The action was brought by the minority shareholders, represented by Mishcon de Reya, in the form of an unfair prejudice petition under section 994 of the Companies Act 2006. In his judgment, Mr Justice Adam Johnson concluded that the minority shareholders have successfully made out their case that they were unfairly prejudiced at the hands of the two majority shareholders – Minden Worldwide Limited and Vollin Holdings Limited (together ''the Investors'') which are beneficially owned by, and investment vehicles for, Roman Abramovich (Minden) and Alexander Abramov/ Alexander Frolov (Vollin). These individuals also hold significant stakes in EVRAZ plc.

Partner Michael Armstrong, who led the team on the case said; "The judgment represents a significant victory for the group of minority shareholders who have endured a long and hard fought battle over the last four years against well-resourced and determined opponents."

Compound was formed in 2004 by Dr Jonathan Sachs and Mark Faulkner and its business vision was to revolutionise the market in projectors. Dr Sachs was CEO and a director; Mr Faulkner was also a director and Chairman. Initially, there were a number of individual shareholders who either invested in their own names or via SIPPs. As the business progressed, further investments were necessary. Beginning in 2010, Vollin made a number of substantial investments and thus became a shareholder and later, Minden did the same. By 2016, the Investors together held the overwhelming majority of the shares.

In his 200 page judgment (which can be found here), Mr Justice Adam Johnson held that the Investors ignored Compound's constitution which was interpreted as providing, amongst other things, that Dr Sachs and Mr Faulkner would remain involved in the management of the business, with protections in place to ensure that they could not be removed as directors. Instead, the Investors sought to impose their vision of how the business should operate and, in doing so, they essentially usurped the Board and took over control of the management of the business.

Key examples of the unfairly prejudicial conduct by the Investors include:

  • Forcing Dr Sachs to resign in circumstances where he was told that, if he did not do so, he would be removed and, importantly, that the Investors would no longer provide necessary funding whereas, in fact and unbeknown to Dr Sachs, they had already decided to fund, at least in the short term.
  • Removing Mr Faulkner from office after he raised a number of concerns about corporate governance and the failure to keep him informed of material financial matters.
  • Deliberately withholding important information concerning Compound's affairs such as the sale of its plant in Newton Aycliffe.
  • It was also held that there have been breaches of directors' duties owed by the Investors' nominee directors which also constituted unfairly prejudicial conduct.

The trial, and judgment, concern liability only such that a further trial to establish quantum will follow.

The Mishcon de Reya team included Michael Armstrong, Jessica Wicker, Alexandra Baker and Matthew Scola. Counsel for the minority shareholders were Robin Hollington QC and Adrian Pay of New Square Chambers.

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