Shareholders - Unfair Prejudice & Just and Equitable Winding Up Flashcards
(19 cards)
What is an unfair prejudice claim?
A claim brought by a shareholder where the company’s affairs are being conducted in a way that is unfairly prejudicial to their interests or to those of other members
Is an unfair prejudice claim brought on behalf of the company or personally?
It is a personal claim brought by a shareholder against the company
What is the legal test for unfair prejudice?
That the Company’s affairs:
a) are being or have been conducted in a manner unfairly prejudicial to some or all members, or
b) an act or omission is or would be unfairly prejudicial
What are examples of conduct that may be considered unfairly prejudicial?
- excessive remuneration of directors
- dealings with associated persons
- failure to pay dividends
- exclusion from management in quasi-partnerships
- breach of expectations or agreements about member participation
Must the conduct involve bad faith or illegality?
No - bad faith or intent is not required - objective unfairness is sufficient
Does simple mismanagement or disagreements over business strategy justify an unfair prejudice petition?
No - unless the mismanagement is serious and repeated, or clearly affects the shareholder’s interest
What principle was confirmed in O’neill v Phillips regarding unfair prejudice?
A claim will generally only succeed where there is a breach of the terms on which the parties agreed the company would be run, unless equitable considerations justify a broader view of unfairness
What role does the claimant’s conduct play in the court’s decision?
It may be relevant but the claimant does not have to prove they come with ‘clean hands’
What is the role of ‘legitimate expectation’ in unfair prejudice claims?
In quasi- partnerships, shareholders may have legitimate expectation to participate in management. Preventing this may be unfairly prejudicial
What kind of remedy does the court have discretion to grant?
Any order it sees fit. the most common is an order requiring the wrongdoer to buy out the petitioner’s shares
Can the court order a minority shareholder to buy out the majority?
Rarely - such orders are usually made against the majority shareholders not in their favour
What is the usual valuation date for a share purchase order?
The date of the court order, unless the court decides another date is fairer.
Will a discount be applied to a minority shareholding?
Generally, no especially in quasi-partnerships where the shareholder was active in management. A discount may be applied if the shareholding is passive or purely for investment
Can previous offers to buy shares affect valuation?
Yes - the court may consider whether the petitioner unreasonably refused a prior fair offer
What risk does shareholder take by starting a s994 petition?
They may end up forced to sell their shares or be subject to unexpected valuation outcomes if they reject settlement
What is just and equitable winding up in the Insolvency Act?
A remedy allowing any shareholder to petition for the company to be wound up where it is just and equitable to do so
What is the consequence of a successful petition?
The company enters into compulsory liquidation, and its affairs are wound up by a liquidator
Why is s.122 considered a remedy of last resort?
It ends the company’s existence, so courts will only grant it where no other remedy is suitable
Can a shareholder bring both a s994 (unfair prejudice) and s122 (just and equitable) petition?
Yes - the 2 are often brought together, though the court will favour the less drastic relief available.
