Unfair prejudice remedy

Unfair prejudice petition

That the company’s affairs are being or have been conducted in a manner that is unfairly prejudicial to the interests of members generally or of some part of its members (including at least himself), - ON BEHALF OF SH THEMSELVES

Who is able to petition ?

A member of the company

non-members who shares have been transferred or transmitted by operation of the law

Secretary of state

Creditors

What is ‘Unfair prejudice’ Test

Objective test: ‘The test of unfairness must, I think, be an objective, not a subjective one … the test, I think, is whether a reasonable bystander observing the consequences of their conduct, would regard it as having unfairly prejudiced the petitioner’s interests’ – Re Bonvey Hotel Ventures Ltd (1981)

Unfairness

Unlawful - of course if it breaches the articles or contractual agreement

Lawful - unfair if it breached legitimate expectations/ equitable considerations

Members Interest: Scope

Members formal right as per Articles

Legitimate expectations arising for SHs understanding - restricted to a quasi-partnership

Characteristics of quasi-partnership

Company formed on mutual trust

There will be an agreement that some or all of the members will be involved in management

Shares will not be freely marketable, meaning that an aggrieved shareholder may be locked in the company

Legitimate expectations: O’Neill v Phillips

Parliament has chosen fairness as the criterion by which the court must decide… a wide power to do what it considers to be just and equitable. But this does not mean that the court can do whatever the individual judge happens to think fair. The concept … must be … based upon rational principles.’ Quoting another case with approval: ‘The court… has a very wide discretion, but it does not sit under a palm tree.’

Suggested scheme by the law commission

Member of private company may apply to court for an order under this section on the groups of their exclusion from participation in management of the company

Only when min 2 members, max 5 ; company formed or continued on the basis of a personal relationship - mutual trust

before exclusion there was agreement member would participate in management

Remedies - S.996

Court can make any order

Most common: reasonable offer to buy out the petitioner

Sale of the majority shareholders shares to petitioner

Require company to refrain from doing something

Authorize Civil proceedings to be brought in the name and on behalf of the company by such person

Requiring the company to make/not make special alterations to articles

Regulate companies future conduct