Shareholder Disputes – Unfair Prejudice Petitions
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A short guide to shareholder disputes – (1) Unfair Prejudice Petitions
According to Companies House, the UK has over 5 million registered companies. Being a shareholder of a company can be a rewarding experience, but what happens when things go wrong?
Below is a short guide to Unfair Prejudice Petitions, one of the tools available to shareholders when a dispute arises with their counterparts.
What is it?
An Unfair Prejudice Petition is a potential route of recourse where the affairs of the company are being managed in such a way as to cause unfair prejudice to some of its members. It is typically available to minority shareholders who own a minority of the voting shares. For these petitions, a minority includes a 50% shareholder.
A petition can be brought where the prejudicial action is yet to take place but is proposed.
An Unfair Prejudice Petition will seek relief from the court from the prejudicial acts.
Who can bring an Unfair Prejudice Petition?
It is typically available to minority shareholders who own a minority of the voting shares. For these petitions, a minority includes a 50% shareholder.
It is also possible for the personal representatives of a member or trustee in bankruptcy to bring a petition.
What are the grounds for bringing an Unfair Prejudice Petition?
As above, an Unfair Prejudice Petition will usually be brought on the basis that the management of the company is being conducted in such a way that is unfairly prejudicial to the shareholders of the company.
Unfairly Prejudicial conduct could be where there has been a breach of a shareholder’s agreement, a breach of the articles or a breach of a director’s duty. It also possible to bring a petition where the majority has breached an informal agreement or arrangements not linked to the articles or a formal shareholder’s agreement.
Examples include but are not limited to:
- Breach of a director’s fiduciary duty;
- Minority shareholder is excluded from the management of the company;
- Dilution of a minority shareholder’s interest;
- Majority shareholder / director granting themselves remuneration that is excessive.
Remedies
The Companies Act gives the court discretion in exercising its powers with judges being able to ‘make such order as it thinks fit’.
The court may:
- Make a share Purchase Order – this is the typical remedy sought and involves the court ordering the sale of the minority’s shares to the majority for a value fixed by the court.
- Regulate a company’s future affairs;
- Order a company to cease an unfairly prejudicial act;
- Order a company to perform an act that it has omitted to do;
- Restrict a company’s ability to alter its articles without the permission of the court.
Contact us
If you are experiencing issues with your fellow shareholders or any other company dispute, please get in touch with our Dispute Resolution team.
Take a look at our website to see other services that Rix & Kay offer.
