Shareholder disputes can escalate quickly – and it can be particularly difficult for those with a minority shareholding, when a company is being run in a manner which harms that individual’s interests. The law provides a powerful remedy: an unfair prejudice petition – pursuant to section 994 of the Companies Act 2006.
1. When to Consider an Unfair Prejudice Petition
You may have grounds for a petition in the event the company’s affairs are being managed in a way that is both:
- Connected to the running of the company; and
- Unfairly detrimental to you or a group of shareholders.
This could include circumstances such as: exclusion from management, misuse of company assets, diversion of business opportunities or decisions that dilute your shareholding.
2. Preparing and Filing the Petition
A petition is issued at court and must clearly set out:
- What has happened;
- Why what has happened is unfair; and
- What remedy is sought.
Precision and detail matter: dates, meetings, decisions and those involved should be recorded and identified. The more detail, the harder it is for an opponent to discredit your version of events.
3. Collecting and Preserving Evidence
To reinforce the above, strong evidence underpins any successful petition. It is crucial to retain the following information:
- Emails, messages and letters;
- Meeting notes / minutes;
- Financial records;
- Any material (audio / video) that supports your case; and
- Importantly, any documents / evidence that contradict your case – there is a continuing duty to preserve all evidence that is relevant to the dispute, and a requirement for such information to be disclosed as part of any proceedings.
4. Using Experts
Many cases require expert valuation evidence. A forensic accountant may be instructed to determine the fair value of your shares – particularly in the event the likely remedy is a compulsory buyout.
5. Potential Remedies
The court has a wide discretion to provide a solution that addresses the harm inflicted. Common remedies include:
- A compulsory purchase of your shares at fair value;
- A reverse share buy-out (where the majority shareholder’s shares are purchased); or
- Management orders or orders for information.
In urgent cases, where a shareholder is seeking to remove assets from the company, interim relief can also be sought – albeit urgent relief can be particularly expensive.
6. What Happens After Filing
Following the presentation of the petition, the court will:
- Set a hearing date.
- Provide directions for the service of the petition, filing a defence and filing a reply.
- There will be a subsequent case management hearing setting out directions to trial.
7. Who Should Be Named as Respondents
Those alleged to have acted unfairly must be named as the respondents.
The company itself is usually named as a respondent, even if it takes no active part in the proceedings.
8. Confidentiality Considerations
Legal privilege issues can arise in these proceedings, particular around company-lawyer communications. Specific advice is essential to ensure sensitive materials remain protected.
How to Get in Contact
Culbert Ellis’ Dispute Resolution team often works with shareholders addressing a range of potential disputes, as well as advising in respect of measures which seek to prevent shareholder disputes from becoming complicated in the first place.
If you have any questions concerning an ongoing dispute, or if you are concerned that an ongoing issue is close to being escalated and you would like to discuss your options, please do get in contact with Jamie Short at jamie.short@culbertellis.com or call +44 (0)203 987 0222.
