7th September 2022
Cardiff City FC has found itself in the legal press after being the subject of an unfair prejudice petition.
The case  revisits the well-trodden legal journey which a shareholder must successfully complete in order to make out their claim, and considers a majority shareholder’s role in alleged unfair prejudice by the company. Also of particular interest is the judgment’s useful commentary on how the shares of football clubs should be valued. Football club share valuation is of course, often the subject of complex and commercially unique arrangements and high levels of debt, and the value of the ‘club’ can fluctuate wildly from time to time.
Mr Isaac, a minority shareholder (originally c.3.9%) in Cardiff City Football Club (Holdings) Limited (the Company), brought the unfair prejudice petition under s994 Companies Act 2006. The majority shareholder, Mr Tan, originally had 94% of the shares, and there was already a breakdown in relations between the two.
In summary, Isaac complained about an open offer of shares made by the Company which only Tan chose to take. That increased Tan’s shareholding to over 98% and diluted Isaac’s to just over 1%. Isaac complained that this dilution was unfair and prejudicial, not just because it made him worse off, but because he alleged the process was orchestrated by Tan out of personal animosity, rather than a true business interest. Isaac also argued that the directors had failed to exercise their power to allot new shares only for a proper purpose .
Despite the wide range of remedies available, Isaac sought a court order forcing Tan to buy his shareholding for fair value. (That course of action is often the ‘default’ in unfair prejudice petitions.)
Tan was the main Respondent and denied the allegations. As was well reported in the sports press and noted by the judge, Tan had made a ‘pledge’ to reduce the amount of the Company’s (and therefore Cardiff FC’s) indebtedness. This was a matter of concern to Cardiff FC supporters because of its effect on the operations of the Club, having regard to UEFA’s Financial Fair Play Regulations. In fact, in early 2016 Cardiff FC had been embargoed from acquiring new players during the January transfer window as a result of restrictions under those Regulations. As part of the pledge, Tan paid for the new shares issued to him by agreeing to write off around £67m which was owed to him from the Company.
A key point arising was around the date on which Isaac said his shareholding should be valued. He said the court should turn back the clock to 2018, just before the share offer was made. Not only would he have had the larger 3.9% shareholding at that date, but also it was common ground that if the ‘present day’ valuation was used, the shares would be worth nothing .
The judge concluded that, for various reasons, there had been no unfairly prejudicial conduct. Isaac’s claim failed. However the judge went on to offer some helpful legal and practical insights.
Of interest to all those concerned with unfair prejudice claims, shareholder disputes, share valuation, and corporate governance generally, the judge’s commentary ultimately confirmed:
Walker Morris’ Commercial Dispute Resolution team is highly experienced in helping both shareholders and companies alike to navigate their business disputes. Working in close conjunction with our sports team, we also regularly advise football clubs in connection with what are often complex and, at times, emotive business relationships.
For further advice or assistance in relation to any of the issues covered by the Cardiff FC case, or unfair prejudice/shareholder disputes generally, please contact Gwendoline, Lynsey or Louise all of whom will be very happy to help.
 Isaac argued that the directors exercised their allotment power in order to further Tan’s personal vendetta rather than to improve the Company’s financial position. Isaac also alleged breaches of duties by the directors who approved the share offer
(FCIArb) Head of Commercial Dispute Resolution