23/05/24

Unfair Prejudice Claims | The Companies Act 2006

Unfair Prejudice Claims | The Companies Act 2006
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Unfair prejudice arises when the interests of one or more minority shareholders in a company suffer prejudice by the actions of directors or majority shareholders of the company.

The Companies Act 2006 (‘the Act’) provides a course of action at section 994 as follows:

A member of a company may apply to the court by petition for an order on the ground that:

  • the company’s affairs are being, or have been conducted in a manner that is unfairly prejudicial to the interests of members generally, or a part of the members or
  • that an act or proposed act or omission of the company would be so prejudicial.

Additionally, a petition may be presented by:

  • non -members to whom shares have been transferred (section 994(2)).
  • non-members to whom shares have been transmitted by operation of law – e.g., following death of a deceased member (section 994(2).

It is essential that a shareholder seeking to issue a petition is able to prove unfair prejudice and not simply the existence of a dispute between the parties. A court will not be anxious to disrupt reasonable decisions made in the operation of a business.

Stuart Southall of KANGS outlines the nature of unfair prejudice petitions.

Unfair Prejudice

It is for the court to decide whether the petitioner has suffered an unfair disadvantage whether by, for example, the:

  • mismanagement of a company, such as payment of excessive director’s remuneration,
  • failure to fulfil an essential function, such as disclosing accounts or management information,
  • failure to abide by the Articles of Association and exercise of abuse of power,
  • breach of a Contractual Agreement such as a Shareholder Agreement,
  • misuse, transfer or misappropriation of company assets,

Court Remedies

Under section 996 of the Act, if the court is satisfied that a petition is well founded, it may make such order as it thinks fit for granting relief including:

  • regulating the future conduct of the company’s affairs,
  • requiring the company to refrain from doing an act complained of,
  • requiring the company to do an act which has been omitted,
  • authorising civil proceedings in the name of the company on such terms as the court may direct,
  • requiring the company not to make alterations in its articles, without leave,
  • providing for the purchase of the shares of any members of the company by other members or by the company itself.

How Can We Assist?

Disputes of this nature, often involve companies with a small number of shareholders and the extent to which the parties will have fallen out usually leaves little scope for reconciliation.

The Court possesses a wide range of powers, such as regulating the company's ongoing conduct and ordering the sale of shares from one disputing faction to the other.

However, the level of costs required to fund any action of this nature through the civil courts is enormous and, potentially, totally disproportionate to the amount in dispute. The Court will encourage the parties to engage in Alternative Dispute Resolution and will require good reason if the parties fail to do so.

If you are involved in any form of civil dispute, it is important to understand the nature and cost of all available procedures.

The Team at KANGS will be pleased to provide assistance and support the entirety of any Civil Dispute and Litigation, seeking to achieve the most satisfactory outcome available as quickly and economically as possible.

If we can be of assistance, please do not hesitate to contact our Team using the details below:

Tel:       0333 370 4333

Email: info@kangssolicitors.co.uk

We provide initial no obligation discussion at our three offices in London, Birmingham, and Manchester. Alternatively, discussions can be held through live conferencing or telephone.

Hamraj Kang

Hamraj Kang
Senior Partner

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Nazaqat Maqsoom

Naz Maqsoom
Associate

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