Analysis for claim for unfair prejudice

Question 1

Key structure for advice on claim for unfair prejudice

Answer 1

1. Basis for the claim
   - What are the facts of the client’s situation?
2. What is the strength of the shareholder’s claim?
   - Strengths / weaknesses
3. What does the shareholder threatening to bring the claim want?
4. Advise on risks of claims - expensive, time-consuming, complicated.
   - Negotiation is preferable
   - What is the negotiation strategy?

Question 2

Basis for the claim

Answer 2

A shareholder can bring a claim for unfair prejudice on the grounds that the company is being run in a way which is unfairly prejudicial to them.

Apply to facts of the scenario, for example:
- non-payment of divdend?
- excessive remuneration of director
- removal of director from small private company and legitimate expectation to be involved in management decisions

Question 3

Strength of the claim

Answer 3

Need to advise on how likely the shareholder is to succeed in their claim
- How strong is their claim?

Question 4

What does the shareholder want? And how does this fit with the court’s discretion and likely order?

Answer 4

• Court usually orders the wrongdoer to purchase the petitioner’s shares at market value
• The court will value the shares if the parties cannot agree

Question 5

Draw backs on court proceeding and what are the alternative options?

Answer 5

• Unfair prejudice claims are time consuming, expensive and complicated
• Negotiated settlement is preferable - identify a negotiation strategy

Negotiation strategy:
- Identify what the likely court order is - refer to this offer in attempt to settle (e.g., offer to purchase the shares)
- If value of shares cannot be agreed, propose third party independent valuer
- Court is unlikely to award a shareholder compensation - therefore, clients should not offer this either (at the first instance)