You are a shareholder in a business and have found that relations with your fellow shareholders/directors have irreversibly broken down. If a director or shareholder has done something which is clearly not in the company’s best interests, you may act.
If you are unable to resolve these problems, you may present an unfair prejudice petition to Court against your fellow shareholders / directors, to bring them to account and put the company in the rightful position it should be in.
Are you eligible bring a claim?
A claim for unfair prejudice is made in accordance with section 994 of the Companies Act 2006. This is a well-established cause of action that can trace its roots back to the Companies Act 1945.
To be eligible to bring an unfair prejudice claim you must be one of the following:
- A member of the company (shareholder);
- A non-member who has been transferred shares (but not entered onto the Register);
- A non-member who has acquired shares by law (i.e. the family representative of a deceased person).
Once you have proved your eligibility to bring a claim, you must satisfy certain criteria under section 994. You must show that the unreasonable behaviour relates to the running of the company and affects you in your capacity as a shareholder. Once this is established, you can then prove that this conduct is prejudicial to you and/or the other shareholders.
Whilst the Act does not provide a conclusive list of what constitutes prejudicial conduct, some of the most common examples that we regularly come across include:
- Failing to consult or provide information to a shareholder;
- Allotments of shares and rights issues;
- Breaches of Articles of Association or a Shareholders’ Agreement;
- Exclusion from management.
The Court has very wide powers to make orders to put rights wrongs, in these, and other scenarios.
Section 996 of the Act grants wide powers to the Court and enables it to make any Order it deems fit to bring a resolution.
In practice, the most common is a share purchase order. This provides that shareholder(s) buys out the others, or visa versa. However, this can often lead to additional dispute over the fair value of shares, prolonging matters and causing further tensions between the parties.
The Court’s Order can also; (a) regulate the company’s conduct and affairs in the future and (b) prevent the company continuing the prejudicial behaviour complained of. These remedies are less commonly ordered as they require all parties to re-establish a working relationship, something that has already been proven to have broken down beyond repair.
A word of warning
Unfair prejudice petitions are not for the faint-hearted and are regarded as a last resort for shareholders who have exhausted other dispute resolution processes. The legal process can become extremely costly, especially where expert evidence in relation to the valuation of shares is required. This means there is a real risk the petition itself may cost you more than your shares are worth – depending on the size of your business. We would always advise you to seek legal advice from a Solicitor with expertise in this area as soon as the prospect of a potential claim arises.
How we can assist?
At McHale & Co, we are experienced in all aspects of Unfair Prejudice Petitions and have been instructed by many individuals whose business relationships have irrevocably broken down. If, as a shareholder, you feel you are being treated unfairly and need specialist legal advice about bringing a claim, we can assist. Likewise, we can help if you need to defend a claim against you, which you believe to be unjustified or unfair.
If you need any assistance our team can be reached by calling 0161 928 3848 and asking for Paul Fitton.