Atherton v Atherton

High Court highlights the difficulties of arguing that a Company is a quasi-partnership in Unfair Prejudice Claims in shareholder disputes. 

A minority shareholder will often want to argue that the company that they hold shares in is a quasi-partnership. 

One powerful benefit of quasi-partnerships is that minority shareholders might be entitled to participate in the management of the company. If the majority shareholders exclude them from management in a quasi-partnership that might be the basis of a claim for unfair prejudice. 

Another benefit is that the valuation of the shares of a minority shareholder might not be subject to a minority discount. Discounts of up to 70% might apply if the company is not a quasi-partnership.  

In Atherton v Atherton & Ors [2025] EWHC 3229 (Ch), the Court explained the limited circumstances in which a company will be treated as a quasi-partnership for the purposes of an unfair prejudice petition under s.994 of the Companies Act 2006. In this case, the judge was reluctant to extend the narrow grounds for arguing that a company is a quasi-partnership beyond those described in the previous important case of Ebrahimi v Westbourne Galleries Ltd. 

In Atherton, the petitioners (claimants) Mr Atherton and Mr Neto argued that Just Recruit Group Limited was founded on the basis of trust and confidence, operated on the basis of informal understandings amounting to a quasi-partnership and that he was therefore entitled to participate in management. He therefore said that the company was being run in an “unfairly prejudicial” manner because he was  excluded from management and because the management abandoned an alleged “exit plan”. 

The Court rejected the quasi-partnership argument. The judge found that the small size or informality of the company was not sufficient. The court, applying Ebrahimi, found that a claimant must establish (i) a personal relationship involving mutual confidence, (ii) an agreement or understanding that all or some shareholders would participate in management, and (iii) restrictions on share transfers which make exit impracticable. 

The Claimants failed to prove any of these. First, the court found no personal relationship based on trust and confidence. Mr Neto was recruited to run the company as an employee with share incentives; his relationship with the other shareholders was described by both sides as “purely business”. Mr Atherton, though a director, remained an employee and was remunerated under an employment contract. There was no relationship of equality between the parties, nor any shared assumption that they were partners rather than majority and minority shareholders. 

Secondly, there was no binding agreement or understanding that the petitioners would participate in management as shareholders. Mr Neto managed the company because he was employed to do so, not because of any agreement, because of the company’s articles of association or other legal right. Mr Atherton’s involvement was limited and secondary to his employment obligations. The court stressed that participation in management as a matter of fact is not the same as a right to do so immune from removal. 

Thirdly, JRG’s articles contained no restrictions on share transfers. Unlike in Ebrahimi, there was nothing preventing shareholders from exiting, at least in principle. The absence of pre-emption rights was a significant indicator that the company was not intended to operate as a partnership in corporate form. 

The petitioners’ reliance on alleged “agreements”, “understandings” and an “exit plan” was also rejected. The court characterised these as aspirational discussions rather than enforceable arrangements. References to a possible sale after several years amounted to no more than a commercial hope that the business might one day be sold if it made financial sense. Such expectations were insufficient to impose constraints on the way the company was run by the majority shareholders. 

The judgment illustrates that quasi-partnership remains the exception rather than the rule, not a flexible tool to remedy disappointed expectations. Senior employees, even those critical to a business’s success, do not become partners merely because they are trusted, rewarded with minority shares, or involved in management. Without clear evidence of equality, mutual confidence, and agreed limits on majority power, it appears that s.994 will not be used to rewrite the parties’ chosen corporate structure. 

 Important Disclaimer: