Unfair Prejudice Petitions in Shareholder Disputes

Posted on: July 28th, 2021

A minority shareholder may seek relief from the courts over a dispute with a majority shareholder if they feel that the majority have acted in a way that is detrimental to the companies’ interests and their shareholding. This can be in the form of an unfair prejudice petition.

Generally, any individual or group of shareholders that control 75% of a company’s share capital do not require the consent of the minority shareholders for decisions to be made.  This can lead to disputes about conduct and behaviour which is prejudicial to the minority shareholder.  It often comes hand in hand with claims that the directors of the company have also acted in breach of their fiduciary duties.

For an unfair prejudice petition to be successful evidence must be produced that the affairs of the company have been conducted by the majority in a manner that is detrimental to the discontented shareholder’s rights. If a company is being managed lawfully and in accordance with its articles, then a challenge cannot be made simply because they do not agree.

What can the court do?

The court has wide powers to ‘make such orders as it thinks fit for giving relief in respect of the matters complained of’ if there has been unfair prejudice.   The most common remedy is an order that the majority shareholder is required to purchase the shares of the minority.

The case of VB Football Assets – v- Blackpool Football Club (Properties) Limited illustrates the impact of a successful unfair prejudice petition.
In this case the court found in favour of the petitioning minority shareholder and ordered a buyout of its shares because the majority shareholder had failed to separate out transactions that were in the best interests of Blackpool F.C. from those in their own personal interest. The buyout cost the majority shareholder.

But it is not just fines that majority shareholders need to be wary of, the courts have other remedies at their disposal – including regulating the conduct of a company’s affairs. This was shown most recently in June 2021 in the case of Macom GMBH -v- Bozeat.

In this case,  the court QC declined to make a buyout order and instead chose to make an order regulating the conduct of the company’s affairs. The unfair prejudice claim was brought due to unauthorised payments being made by Mr Bozeat through Macom UK. The payments had not caused the company any financial loss, distinguishing this case from Blackpool FC. These regulations on the company were not the result that either party wanted, so the court action is not likely to have strengthened Mr Bozeat’s relations with the other shareholders.  

Judge Hodge QC commented: “where both children have started throwing their toys out of their respective prams (as has been the case here), nanny may sometimes have to impose order upon them”.

A Warning from the courts

The Macom case is a rare example of a majority shareholder petitioning for unfair prejudice.  However, it also serves as a warning that the English courts have very broad powers to grant whatever remedies they think fit and they will not use the buyout relief as a one size fits all remedy. This should be considered before making unfair prejudice claims in the future. Sometimes those powers can give rise to a result which none of the parties are happy with.

Our experts have experienced recent success in unfair prejudice petitions.  If you have any questions regarding an ongoing or potential shareholder dispute, please do not hesitate to contact us.