Stephen Hackett (instructed by Candey Limited) for the Petitioner
ICC JUDGE PRENTIS
Introduction and overview
During the conversations before Nathan Macabuag invited Benjamin Lakey to join him as a co-founder of Mitt Wearables Limited (“Mitt”), Mr Macabuag told him a story. In its condensed form, given in cross-examination, it was of Jesus “riding on a donkey and everyone is sort of like applauding because they’re happy that Jesus is coming back. So this donkey is walking into town, it’s full of a crowd of people, and this donkey is thinking ‘Yeah, wow, all these people for me, wow’. And the moral of the story is, obviously: don’t be an ass: it’s not you; it’s what you’re carrying; it’s the idea”.
Mitt had been incorporated to develop and sell the idea, a new type of medical prosthesis, known as “the Mitt”, which would be far cheaper than existing alternatives, and was perceived as offering the possibility of being fitted without clinics, and hence of being sold direct to users. The idea was Mr Macabuag’s, developed during his studies in mechanical engineering at Imperial College, London (“Imperial”), during which he “fell in love” with the story and character of Alex Lewis, who had lost all limbs to septicaemia and was now offering himself to students not only as an inspiration, but as a human test model. Mr Macabuag was enthused by the possibility of using his own talents to be useful to Mr Lewis and others. He was not the only one working on the idea: three others were with him at Imperial, and Mitt was incorporated on 23 October 2017 by himself and one of those, Joshua Chidwick. Mr Chidwick left amicably to pursue other matters, and on 15 March 2018 transferred his shares to Mr Macabuag and ceased to act as a director.
The next day Mr Macabuag and Mr Lakey met for the first time. Mr Lakey is Canadian, with a degree in mechanical engineering from the University of Alberta. From there he had joined a company in Canada as a project co-ordinator and manager in the fields of mining and construction, before moving to Imperial to study for an MRes in “medical device design and entrepreneurship”, focussing on clinical research and commercial exploitation in prosthetics; the only such course in the UK. “I was taught how to start and grow a company in a heavily regulated and clinical environment”. At the time of meeting Mr Macabuag, Mr Lakey was setting up a clinical evaluation of control software for his project on myoelectric control for prostheses. The idea resonated with him: his sister was to undergo a below-knee amputation later in 2018.
By May 2018 Mr Macabuag and Mr Lakey were working together on Mitt, and from July 2018 were sharing desk space at Imperial’s “Advanced Hackspace”. Mr Lakey was appointed a director of Mitt from 26 June 2018, an office he held until 20 December that year, and was re-appointed on 21 March 2019; the hiatus was owing to his immigration status. He also came to be a shareholder under a 20 August 2018 Founders Agreement; and an employee under a 12 September 2018 Employment Agreement.
In Autumn 2018 two important events in the development of Mitt occurred. Through the Hackspace Mr Macabuag and then Mr Lakey met Nicholas Mellor, who agreed to become a formal adviser. Mitt also won the People’s Choice award in the 2018 Royal Academy of Engineering (“RAE”) Launchpad Awards, sponsored by the Gammon family and intended to assist student engineers with money and connections. They were thereby introduced to David Gammon, who by co-incidence was a friendly acquaintance of Mr Mellor’s.
These were important because Mitt was never going to get anywhere without significant investment which would permit the product’s further development and trialling, leading, as was hoped, to its being marketed for the benefit of all.
Mitt signed off an agreed summary term sheet with its new investors on 21 March 2019. On 2 April 2019 its Articles were amended, and it and they entered into a Subscription and Shareholders’ Agreement (the “SSA”) drafted by Taylor Vinters. Mr Mellor was appointed as a non-executive director on 5 April 2019. His wife, Amanda, was one of the investors; the others were Jeffrey Berman, William Hobhouse, Chris Pinnington and Rockspring Nominees Limited, which was the vehicle for Mr Gammon and Huw Jones. £300,000 was raised. A second funding round was anticipated to commence in January 2020, with closure in April 2020. Mitt was not expected to be financially self-sufficient before then.
Shortly after the first funding round the relationship between Mr Macabuag and Mr Lakey commenced its decline to a position of unworkability. The ins and outs were covered in trial and will be recorded below, although they have become largely immaterial. By the end of September 2019 Mitt was taking advice from Taylor Vinters as to the removal of Mr Lakey, as director and employee; and on 8 October he was suspended on allegations of misconduct. After correspondence between Taylor Vinters and Withers, whom Mr Lakey had instructed, on 22 October Sophia Berry, a barrister of Littleton Chambers, was instructed by Mitt to investigate the allegations. She produced her report on 16 December, finding some of the allegations made out and determining that Mr Lakey had committed “serious breaches of duties or obligations that he owes to the Company” in their respect, and as to a post-suspension accessing by him of Mitt’s Google Drive. Mr Lakey had already rejected the terms of a settlement letter handed to him on 8 October, and those of a letter of 14 October; and he rejected those in another letter of 17 December. On 19 December his employment and directorship were terminated by letter. However, Mitt accepting that the latter was irregularly carried through, his directorship was restored until termination by shareholder resolution on 28 August 2020. This unfair prejudice petition under section 994 Companies Act 2006 (“CA06”) had already been presented, on 2 June.
It is the position of Mitt, and of Mr Macabuag and Mr Mellor as respondents to the petition, that the effect of Mr Lakey’s removal as employee was that under the Articles he was to be characterised as a Bad Leaver, and as such his shares were automatically converted into Deferred Shares carrying no dividend rights and a total value of a penny.
On 3 March 2020 Mr Macabuag incorporated the fifth respondent to the petition, Koalaa Limited, of which he has been sole director throughout. During April and May 2020 the investors in Mitt received proportionate allotments of shares in Koalaa; and on 6 May 2020 Mitt and Koalaa entered a “Licence of intellectual property and asset purchase agreement” (the “Licence”), whereby Koalaa obtained Mitt’s fixed assets, being office equipment, tools and stock, and access to its business records; licensed its IP; and became the TUPE-transferor of Mitt’s employees. Mitt’s remaining asset of value is its right to the fee payable under the Licence.