Unfair Prejudice Claims under the Companies Act 2006

What is an unfair prejudice claim?

An unfair prejudice claim is a legal action that can be brought by a shareholder or group of shareholders under Section 994 of the Companies Act 2006 in the United Kingdom. This claim allows a shareholder who feels that they have been unfairly treated by the company’s management or other shareholders to seek a remedy from the court.

Section 996 of the Companies Act 2006 allows the court to regulate the conduct of the company and apply orders that may include future affairs of the company.

The term “unfair prejudice” refers to an act or omission of the company conducted in a manner that is prejudicial to the interests of a shareholder or members of the company. This may include prejudicing the right to vote or to receive dividends. The claim is usually made when a shareholder believes that the actions of the company’s directors or other shareholders are detrimental to their interests or that they have been excluded from participating in the company’s affairs.

If a shareholder is successful in proving an act amounts to unfair prejudice, the court may order, as it thinks fit, a range of remedies. These may include the alteration of the company’s articles of association, the transfer of shares, the removal of a director, or the winding up of the company.

It is important to note that an unfair prejudice claim can be a complex and expensive process. Shareholders who are considering making such a claim should seek legal advice before taking any action.

Examples of unfair prejudice

Unfair conduct amounting to prejudice can take many different forms. Some examples of actions that may be considered unfair prejudice under the Companies Act 2006 include:

• Exclusion from management decision-making: If a shareholder is excluded from participating in the management decision-making process, it could be considered unfair prejudice. For example, if the directors of the company make important decisions without consulting a particular shareholder, that shareholder may be able to make an unfair prejudice claim.
• Dividend payments: If the company pays dividends to some shareholders but not to others, it could be considered unfair prejudice. For example, if the company pays dividends to the majority shareholders but not to the minority shareholders, the minority shareholders may be able to make an unfair prejudice claim.
• Dilution of shareholding: If the company issues new shares that dilute the value of existing shares held by a particular shareholder, it could be considered unfair prejudice. For example, if a company issues new shares to a new investor at a lower price than the existing shareholders paid for their shares, this may be considered unfair prejudice.
• Breach of fiduciary duties: If the directors of the company breach their fiduciary duties to the shareholders, it could be considered unfair prejudice. For example, if the directors engage in self-dealing or act in their own interests rather than in the interests of the company and its shareholders, this may be considered unfair prejudice.
• Failure to provide information: If the company fails to provide a shareholder with the information they are entitled to under the Companies Act, it could be considered unfair prejudice. For example, if a shareholder requests information about the company’s financial performance or operations and the company refuses to provide it, this may be considered unfair prejudice.

Making an unfair prejudice claim

To make an unfair prejudice claim, a shareholder must follow a specific process outlined in the Companies Act 2006. The process generally involves the following steps:

• Speak to a solicitor: Before making an unfair prejudice claim, a shareholder should seek legal advice to understand their rights and options. A specialist shareholder dispute solicitor can help determine whether the shareholder has a valid claim and advise on the best course of action.
• Attempt to resolve the issue informally: Before making a formal claim, the shareholder should attempt to resolve the issue informally with the other shareholders or the company directors. This may involve sending a letter outlining the issue and requesting a meeting to discuss it.
• File an unfair prejudice petition with the court: If the issue cannot be resolved informally, the shareholder may file a petition with the court under Section 994 of the Companies Act 2006. The petition must specify the grounds of the alleged unfair prejudice and the remedy sought.
• Attend a court hearing: When the petition has been filed, the court will schedule a hearing to consider the claim. The shareholder will be required to attend the hearing and provide evidence to support their claim.
• Obtain a court order: If the court finds in favour of the shareholder, it may issue an order requiring the company to take certain actions to remedy the unfair prejudice.

It is important to note that making an unfair prejudice claim can be a complex and expensive process, and may take a significant amount of time to resolve. Shareholders considering making such a claim should seek legal advice from a commercial law expert before taking any action.

Remedies to unfair prejudice claims

If a shareholder is successful in an unfair prejudice claim, the court may order a range of remedies to ensure the company refrains from doing or continuing to do the proposed act or omission. Some possible remedies include:

• Interim injunction: The court can make an order to stop the prejudicial conduct of the company from taking place if it determines that it is necessary to prevent further unfair prejudice to the aggrieved shareholder. An interim injunction is a temporary order that is granted before a final decision is made on the unfair prejudice claim. This type of injunction is designed to maintain the status quo and prevent further harm to the aggrieved shareholder while the case is being heard.
• An order to purchase the shareholder’s shares: The court may order the company or other shareholders to purchase the shares of the aggrieved shareholder at a fair value, either by agreement or through a valuation process.
• An order to amend the company’s articles of association: The court may order the company to amend its articles of association to protect the rights of the aggrieved shareholder.
• An order to remove a director: The court may order the removal of a director who has engaged in conduct that is unfairly prejudicial to the aggrieved shareholder.
• An order for the payment of compensation: The court may order the company or other shareholders to pay compensation to the aggrieved shareholder for any losses suffered as a result of the unfairly prejudicial conduct.
• An order for a winding-up of the company: In some cases, the court may order the winding-up of the company if it determines that the unfairly prejudicial conduct cannot be remedied by any other means.

The court has broad discretion to order a remedy that is appropriate in the circumstances of the case. The specific remedy ordered will depend on the nature and extent of the unfair prejudice suffered by the shareholder, as well as the company’s financial situation and the impact of the remedy on the other shareholders.

How can Expert Commercial Law assist?

Expert Commercial Law have a panel of solicitors with the expertise and experience to assist parties in making unfair prejudice claims.

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Our panel firms also help with commercial claims, such as breach of contract, restrictive covenants, and CCJ removal

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