Your guide to unfair prejudice claims
Under the Companies Act 2006, a shareholder can apply to the court for help if the company for which they are a shareholder is being run in a way that is unfair to them. This is also known as an unfair prejudice claim.
In this blog, our commercial disputes solicitors explain more about shareholder disputes and how unfair prejudice claims work.
What does unfair prejudice mean?
Unfair prejudice is when a shareholder is being treated in a way that is both unfair and harmful to their position as a shareholder. When shareholders have a dispute, perhaps because another shareholder has abused their power or they are unhappy about how the company is being run, they can make an unfair prejudice claim.
Common examples of unfair prejudice
When it comes to identifying unfair prejudice, there are numerous examples, each unique to the type of company. However, some common examples of unfair prejudice include:
- Exclusion from management
- Withholding dividends
- Misuse of company assets
- Preferential treatment
- Breach of the company’s Articles of Association
- Breach of a director’s duties
How to make an unfair prejudice claim as a shareholder
As a shareholder, you can make an unfair prejudice claim and apply to the court for relief if:
- The affairs of the company are being (or are proposed to be) conducted in a manner that is unfairly prejudicial to your interest as a shareholder; or
- An act, proposed act or omission of the company is or would be prejudicial to your interest as a shareholder.
If you think that you have been treated unfairly as a shareholder, you should speak to a specialist solicitor as soon as possible. Shareholder disputes can prevent the business from operating efficiently. Our expert commercial disputes lawyers will do their best to help you reach an early settlement amicably before the professional relationship breaks down.
When unfair prejudice claims fail
Even if the above requirements apply, not every disagreement or shareholder dispute qualifies as unfair prejudice.
To strengthen your position when the court considers your claim, you should:
- Avoid delay; a delay in bringing a petition may give the other party (Defendant) a window to claim that you accepted what happened and therefore gave up your right to challenge it.
- In many cases, it’s sensible to raise objections to potentially unfair conduct as soon as possible and to seek advice early about whether a petition should be brought.
Types of court remedies for unfair prejudice claims
There is a wide range of remedies available to the court when resolving shareholder disputes. These can include:
- Share buy-outs (see below)
- Regulation of future company affairs
- Injunctions:
- These require the company to refrain from doing or continuing an act you (the shareholder) complained about; or
- To do an act that the shareholder has complained it has failed to do.
- A requirement for the company not to alter its Articles of Association without permission from the court.
The most common remedy in unfair prejudice claims is for the court to order that those who caused the unfair prejudice purchase the shareholder’s shares. The valuation of the shares would be determined by a method chosen by the court (most likely requiring expert evidence). It is likely that any discount caused by the unfair prejudice will be ignored when calculating the shares’ value.
Why do I need a solicitor?
As with any business or personal dispute, it is a good idea to instruct a solicitor as soon as possible.
Any petition will need to satisfy a court that a shareholder has suffered unfair prejudice. When making an order, the court’s discretion is wide-ranging. It is not limited to the relief sought within the petition. Early advice can assist with de-escalating disputes and, if court involvement is required, ensure your application meets the requirements.
How our commercial litigation solicitors can help
If you have a shareholder dispute, our commercial litigation solicitors can help. We can work with you to assess the merits of and pursue a claim and help protect you against a weak or tactical unfair prejudice claim.
Our lawyers can also help with negotiation and settlement strategies, and represent you in court proceedings where disputes cannot be resolved.
Call our Commercial Disputes team on 0117 325 2929 or fill out our online enquiry form.
