Unfair Prejudice Claims
In a business, the Shareholders’ Agreement and/or Articles of Association outline the voting requirements for certain decisions. And yet, shareholders frequently disagree on decisions of the company.
What is unfair prejudice?
Unfair prejudice is where a company’s affairs have been, or will be, carried out in a way that unfairly prejudices the business’ members or a part of the membership, including at least the petitioner.
Often, the majority shareholders carry out these affairs in a way that unfairly prejudices the interests of the minority shareholders.
In the event of a dispute, a minority shareholder is unlikely to have the required votes in their favour. After a number of these disputes, the minority shareholder can feel as if they have shares in a business that they have no say over.
As a minority shareholder, you have rights if you are being prevented from running your business. In short, you can apply to the court for relief if the affairs are being conducted in a manner that is unfairly prejudicial to your interest as a shareholder.
Unfair prejudice claims are brought under section 994 of the Companies Act. The court’s powers are wide and can include ordering the majority shareholder to purchase the minority shareholder’s shares (with the discount for the minority shareholding being ignored).
Majority shareholders will also need to ensure that they are not opening themselves up to an unfair prejudice claim. The court’s power has, in exceptional circumstances, ordered the majority shareholder to sell its shares to the minority shareholder.
The minority shareholder will need to petition to the court evidencing that the conduct or act is unfairly prejudicial. They will need to prove that it is not merely a disagreement or bad commercial decision.
In unfair prejudice claims, the court will consider the promptness of any application from the date of the act. Therefore, it’s advisable to seek legal advice immediately (and prior to making an application) if you think that you are being unfairly prejudiced.