From time to time disputes may arise between shareholders of a company which can in certain circumstances give rise to a claim by an affected shareholder for relief against what is called unfair prejudice.
In order to claim such relief, the shareholder will need to issue a petition at Court and be able to show:
- The affairs of the company are being, or have been, conducted in a manner that is unfairly prejudicial to the interests of the company’s shareholders generally or his own interests as a shareholder: and
- The actual or proposed act or omission of the company is or would be so prejudicial.
If the Court is satisfied that the above requirements have been met, then it will generally make an order that the affected shareholder’s shares are bought by the other shareholders of the company or by the company itself. In those circumstances, the value of the shareholding would be determined by the Court.
Examples of unfairly prejudicial conduct can include:
- Breaches of duty by a director entailing the misuse or misappropriation of company assets or the procurement of an allotment of shares to dilute a minority’s interests.
- Failure to pay dividends;
- Payment of excessive remuneration;
- The dilution of a minority shareholder’s shareholding;
- Failure to comply with the Articles of Association of the company;
- Inequitable conduct including:
- an irrevocable breakdown of trust and confidence in a quasi-partnership;
- exclusion from management;
- failure to consult with or provide information to the affected shareholder.
However, what precisely constitutes unfairly prejudicial conduct within the above categories will need to be closely considered in each case and will be subject to much argument and detailed scrutiny by the Court.
Furthermore, a petition claiming unfair prejudice can be issued by an affected shareholder whilst they still remain involved in the business on a day-to day basis which can cause serious issues for the company and its shareholders as a whole, particularly where the latter are also directors or otherwise involved in senior management positions.
Ison Harrison have a great deal of experience in advising petitioning shareholders as well as the remaining shareholders providing legal and tactical guidance in such situations as well as full support and representation in the legal process. Ison Harrison have represented parties in unfair prejudice proceedings at all stages of a dispute up to trial in the High Court and the Court of Appeal.