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Company Shareholders - What's fair and what's not?

Posted: 4th December 2013   In: Dispute Resolution

Under the Companies Act 2006, a company shareholder can petition the Court where the conduct of the company’s affairs have been unfairly prejudicial to that shareholder. It is not necessary to show that the persons controlling the company’s affairs have acted deliberately or in bad faith towards that shareholder, although it helps. It should be noted that the conduct may be unfair but without being prejudicial, or it may be prejudicial without being unfair. The shareholder must show that it’s both unfair and prejudicial.

Common examples of unfairly prejudicial conduct include the following:

In fact, there isn’t a defined list – each case would be tested on its own merits. The Court has wide powers if satisfied that the conduct is unfairly prejudicial, and may make such Order as it thinks fit, This Order can include:

  1. Regulation of the conduct of the company’s affairs in future.
  2. Requirement of the company to refrain from doing the act complained of.
  3. Authority to bring Court proceedings in the name of the company; and
  4. Provision that one party buy the other party’s shares. This is the most commonly sought relief. In such circumstances where an Order is made for one party to purchase the other party’s shares, there is no universal rule as to the appropriate method for valuing those shares. However, the shares should be valued at the date of the Court Order, although the Court could deviate from this principle, and it would normally state that the valuation should be unaffected by any reduction in the company’s value caused by the unfair conduct.

 

Bill Watterson’s cartoon character Calvin said “Life is full of surprises, but never when you need one”.  However, when they do arise, the Courts may be able to help.

Posted by: Neil O'Callaghan
Commercial Litigation
Luton Office