Statutory unfair prejudice provisions are wide-ranging and much more extensive than derivative claim provisions. S994(1) [Pt 30] – any member may petition court for relief for unfair prejudice:

That the company’s affairs are being or have been conducted in a manner which is unfairly prejudicial to the interests of members generally or some part of its members (including at least himself), or
that an actual or proposed act or omission of the company (including any act or omission on its behalf) is or would be so prejudicial

This is the same as S459 in CA 1985.

Who can sue:

Controlling shareholders are not expressly excluded from bringing such a claim but their normal remedy would be to make use of resolutions etc – by virtue of their controlling position it is highly unlikely that they can be said to be unfairly prejudiced by the minority: Re Legal Cost Negotiators Ltd [1999].

S994 says (minority) shareholders can sue but S994(2) extends this right to those to whom shares have been transferred who are to become members or those who own shares by operation of law (but do not appear on the books eg administrator of an estate). This is useful in small companies where the directors may unreasonably refuse to register a share transfer by misusing their AoA discretion.

However, the beneficial owner of shares cannot bring proceedings – need to get nominee to do so (or trustee) – Atlasview Ltd v Brightview Ltd [2004].

This right is extended to creditors when an administration order is in force – Para 74, Sched B1 Insolvency Act 1986.

What is captured:

Reference is made to conduct of the company’s affairs – wide enough to catch the actions of controllers, whether or not they are directors, shareholders or both. The actions of corporate groups can be brought within the remit of the Act too. However, action strictly qua shareholder eg voting in AGM is expressly excluded by the Act. Actions of parent company can be attributed to subsidiary – Nicholas v Soundcraft Electronics Ltd [1993].

When first introduced, this section was disliked by judges who have traditionally preferred a less interventionist approach – Lord President Cooper per Scottish Insurance Corp v Wilsons & Clyde Coal Co [1948].

Scope of the provisions

Right to petition deliberately drafted in wide terms – first issue therefore to define scope of Act. Suggested that three main question have arisen:

Should reference to conduct which is unfairly prejudicial to the ‘interests of members’ be interpreted as referring only to their interests ‘as members’? This would accord with the narrow approach taken to enforcing rights of members under the statutory AoA contract and was applied in eg expulsion of a minority shareholder from the board being treated as technically something that is qua director not qua member but is factually unfairly prejudicial – Re Lundie Bros [1965]. Courts nowadays take a wider approach – in a small company especially, the member’s expected return on investment should have included director’s fees or there was an expectation of a NED role so as to monitor his investment – Re A Company [1983]. This is now...

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Unfair Prejudice & Just And Equitable Winding Up Notes

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Contents

G&D Chapter 20: Unfair Prejudice

Introduction

Scope of the provisions

Unfair Prejudice & Just And Equitable Winding Up

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