Unfair Prejudice Petitions

If you are a shareholder of a company and feel that you might be being unfairly prejudiced, JMW’s experienced solicitors can help you understand your rights and bring any petition to rectify, or prevent further anticipated, unfair prejudice and, where relevant, ensure you are properly compensated for your shareholding.

To discuss a potential unfair prejudice petition, simply call us on 0345 872 6666, or complete our online enquiry form to request a call back at a convenient time.

How JMW Can Help

We frequently advise shareholders on resolving disputes, including unfair prejudice. Our team will discuss your situation and determine the best course of action involving unfair prejudice petitions and any other remedies available to you. We will always endeavour to settle a dispute with the best available outcome for you.

What is an Unfair Prejudice Petition?

When parties first go into business together, they often don’t give thought to what will happen if relations sour. However, what parties do not perhaps appreciate is that, in the absence of an express agreement to the contrary, the rights of shareholders are quite limited, particularly in the case of minority shareholders.

Section 994 of the Companies Act 2006 provides a statutory procedure whereby a shareholder (whether minority or majority) can petition to the court for assistance in the event that a company’s affairs are being (or proposed to be) conducted in a way that is ‘unfairly prejudicial’ to one or other of the shareholders within the company.

Examples of Potential Unfair Prejudice

Whether or not unfair prejudice has taken place will be determined by the court, but examples of potential unfair prejudice include:

• The misappropriation of company funds or assets by one or more directors
• Breaches of directors’ duties by one or more directors
• Breaches of any shareholders’ agreement, the company’s Articles of Association or any statutory provisions
• Where originally a director, a shareholder’s exclusion from management, whether by formal removal as a director or otherwise
• Payment of excessive remuneration by directors, often combined with a failure to declare dividends
• The allotment of additional shares to dilute minority shareholdings

What is the Section 994 Legal Test?

In order to successfully bring a petition for unfair prejudice, you will need to satisfy the requirements in section 994 of the Companies Act. You will need to establish both unfairness and prejudice in the context of your interest as a shareholder:

1. The court will look at the background and context and apply an objective test to decide whether the conduct complained of is unfair and prejudicial. This will likely involve considering the size and type of the business, the performance history of shareholders, any change to the management of the company and any shareholders agreements in place.
2. The petitioner will need to show a substantial and tangible detriment to prove prejudice. This can include a reduction in the value of your shares, but is not necessarily limited to financial loss.

What Powers Does the Court Have?

If a court concludes that unfair prejudice has taken place, it has various powers at its disposal. Most commonly, the court will order that the petitioning party have their shares bought out at a value to be assessed by the court. However, the court may make any order that it considers fit including, for example, orders regulating the management of the company and/or requiring the company to do, or refrain from doing, a particular act.