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Rapid Response Team: 0800 559 3500
Switchboard: +44 (0)203 947 1539
Rapid Response Team: 0800 559 3500
Switchboard: +44 (0)203 947 1539

Company Sales: Fraudulent Misrepresentation & Breach of Fiduciary Duty

Author: Nicola Sharp  12 August 2022
3 min read

Nicola Sharp of Rahman Ravelli details the issues in a case involving allegations regarding a management buy-out.

The case of Kelly v Baker and Braid that was brought before the High Court considered a number of issues in relation to a management buy-out.

The sellers were DSM Group Holdings Ltd (DSM) and St Francis Group Ltd (SFG). The buyers were DSM SFG Group Holdings Limited (DSM SFG), St Francis Group 1 Limited (SFG 1) and St Francis Group 2 Limited (SFG 2). The buyers were headed by two longstanding employees of the companies, Messrs Baker and Braid, who were the defendants in the case.

The claimant, Mr. Kelly, made allegations of fraudulent misrepresentation and breach of fiduciary duty regarding the sale of the companies. He claimed that he had placed a reliance on Messrs Baker and Braid to get the best price on the market for the assets of DSM and SFG, and that the two men had assumed a fiduciary duty to him in advising him and dealing with third parties. Yet the court found that no fiduciary duty could be established and that Messrs Baker and Braid had achieved a sale at the top end of a true valuation of the businesses.

Case Background

The 2021 case featured a £37 million claim for damages brought by Mr Kelly. He believed there had been fraudulent misrepresentation and/or breach of fiduciary in the sale of the family-run companies for £110 million, which he thought was below their true value. The sale of the two companies, which was supported by corporate financiers, was a management buy-out to a group of purchasers headed by the defendants, who had been trusted employees of the companies for a number of years.

In his claim, Mr Kelly stated that he did not know the sale was a management buy-out. He said the defendants, who he had trusted, breached their fiduciary duties by providing inaccurate and fraudulent information to him regarding the sale price. Mr. Kelly asserted that the companies could have reached a sale price of £200 million. He said that if not for his reliance on the defendant’s misrepresentations about achieving the best possible sale price, he would not have agreed the sale. This reliance, he argued, had cost him £37 million.

The primary considerations for the court were:

  • whether the defendants owed a fiduciary duty to Mr. Kelly and
  • whether this duty was breached

An additional consideration for the court was the factual issue, based on expert evidence, as to the size of the claim, and whether the companies were sold at less than their true value.


The court found that Mr. Kelly’s claim was based on ‘a series of misunderstandings and mis-recollections’ and that no fiduciary duty could be established from either the history of trust between the parties nor in the events that followed.

It was found that:

  • Mr. Kelly had intended to sell the companies if the price was right.
  • He had understood that the sale was management led and that the defendants would receive equity from the sale.
  • The price as agreed by the Kelly family for the sale was £140 million. Only two candidates expressed a real interest in the purchase, neither of which matched the family’s stated price.
  • The defendants did not offer to obtain the best price for the family.
  • A report commissioned to sell to funders did not equate to a valuation for the family and Mr. Kelly, and his family understood this and did not rely on it.
  • The family accepted the offer without advice from the defendants.
  • Mr. Kelly was happy with the sale at the time and wanted the defendants to succeed and make money.

The court found that the elements of fraudulent misrepresentation could not, therefore, be satisfied. Fraudulent misrepresentation requires

  • an individual to make a representation to another party which is false
  • the individual to know it to be false or to be reckless as to the truth of the statement
  • an intention to deceive
  • loss to be suffered as a consequence.

The court also found that the valuation of the shares of DSM at £90 million and SFG shares at £121.28 million in the claimant’s particulars had been grossly overstated. It was found that there was no sale at an undervalue and, in fact, the sale was at the top end of the value of the business.

The defendants’ counterclaim that they could rely on a deed of indemnity to indemnify them against losses incurred in relation to claims brought was accepted. The court found that the indemnity covered losses, including legal costs of the defendants, in circumstances where it is found that they had not breached their duties to the claimant.

Nicola Sharp C 09983

Nicola Sharp


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Nicola is known for her fraud, civil recovery, arbitration and business crime expertise, her experience of leading the largest financial disputes and multinational investigations and her skills in devising preventative measures and conducting internal investigations for corporates.

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