What is unfair prejudice?
Claims of unfair prejudice generally arise when (majority) shareholders misuse their power to enhance their own interests to the detriment of the minority.
Shareholders of a company are able to seek relief from the court (by way of bringing a “petition”) where the dealings of the company are being managed in a way that is ‘unfairly prejudicial’ to the shareholder’s interests. This is governed by section 994 Companies Act 2006.
For a claim of unfair prejudice to succeed, two essential requirements must be met:
- the behaviour/conduct must be unfair; and
- the behaviour/conduct must prejudice or harm the interest of the members or some part of the members of the company.
What is considered unfair?
The court will conduct the ‘reasonable bystander test’ and assess whether or not, on an objective basis, the conduct/ behaviour ought to be considered unfair.
What is considered prejudicial?
Some common examples of prejudicial conduct are:
- business being sent (or diverted) to another of the majority shareholder’s companies;
- excessive financial benefits being awarded to the majority shareholder; and
- breaches of the Articles of Association.
By no means is this list complete, as there are many ways in which conduct can be considered unfair prejudice. If you have any queries about whether conduct within your company might qualify as unfair prejudice, speak to one of our litigation team today.
What remedies are available?
Section 996 of the Companies Act 2006 details the remedies available if unfair prejudice is found to have occurred. The courts may order:
- regulation of the conduct of the Company’s affairs in the future;
- restraint from doing or continuing an act complained or to do an act that has been omitted;
- authorisation of civil proceedings to be brought;
- restraint from making any alterations in its articles without the leave of the court; and
- provision for the company to purchase the shares on a fair valuation.
How can help we help?
Whether relationships are breaking down within your company or you are concerned about potential unfair prejudice occurring in your company, we are able to act in bringing claims and defending claims for unfair prejudice.
If you would like to discuss a potential unfair prejudice petition, please contact the Head of Dispute Resolution today: