Unfair Prejudice Claims
The Shareholders’ Agreement and/or Articles of Association set out the voting requirements for certain decisions, and yet shareholders frequently disagree on decisions of the company.
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 will 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.
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, and not merely a disagreement or bad commercial decision.
The court will consider the promptness of any application (from the date of the conduct/act). Therefore, it is advisable to seek legal advice immediately if you consider you are being unfairly prejudiced (and prior to making an application).