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Unfair prejudice in United Kingdom company law is a statutory form of action that may be brought by aggrieved shareholders against their company. Under the Companies Act 2006 the relevant provision is s 994, the identical successor to s 459 Companies Act 1985. Unfair prejudice actions have generated an enormous body of cases, many of which are called "Re A Company", with only a six-digit number and report citation to distinguish them. They have become a substitute for the more restrictive conditions on a "derivative action", as an exception to the rule in Foss v Harbottle . [1] Though not restricted in such a way, unfair prejudice claims are primarily brought in smaller, non public companies. This is the text from the Act.
s 994 Petition by company member
(1) A member of a company may apply to the court by petition for an order under this Part on the ground—
- (a) that the company’s affairs are being or have been conducted in a manner that is unfairly prejudicial to the interests of members generally or of some part of its members (including at least himself), or
- (b) that an actual or proposed act or omission of the company (including an act or omission on its behalf) is or would be so prejudicial.
(2) The provisions of this Part apply to a person who is not a member of a company but to whom shares in the company have been transferred or transmitted by operation of law as they apply to a member of a company.
(3) In this section, and so far as applicable for the purposes of this section in the other provisions of this Part, "company" means—
- (a) a company within the meaning of this Act, or
- (b) a company that is not such a company but is a statutory water company within the meaning of the Statutory Water Companies Act 1991 (c 58).
Four main issues arise out of the interpretation of s.994. First of all, who has a right to complain against whom? Secondly, what specifically does the "company's affairs" mean in s.994(1)(a)? Thirdly, when is something "unfair" and at the same time "prejudicial"? And lastly, when it says "the interests of members", what counts as an "interest" of a "member"? The defining feature of the s.994 action is that it is completely vague. Courts were therefore capable of interpreting the provisions gradually as they felt would be fair. After hearing a case, a court may make "such order as it thinks fit" under s.996. This wide discretion means that previous case law is not as weighty in precedent, as in other areas of law, since each case will be decided on its particular facts.
In Re Saul D Harrison plc , [2] Hoffmann LJ remarked,
"'Unfairly prejudicial' is deliberately imprecise language which was chosen by Parliament because its earlier attempt in s. 210 of the Companies Act 1948 to provide a similar remedy had been too restrictively construed. The earlier section had used the word 'oppressive', which the House of Lords in Scottish Co-operative Wholesale Society v. Meyer [1959] AC 324 said meant 'burdensome, harsh and wrongful'. This gave rise to some uncertainty as to whether ' wrongful' required actual illegality or invasion of legal rights. The Jenkins Committee on Company Law, which reported in 1962, thought that it should not. To make this clear, it recommended the use of the term 'unfairly prejudicial', which Parliament somewhat tardily adopted in s. 75 of the Companies Act 1980. This section is reproduced (with minor amendment) in the present s. 459 of the Companies Act 1985."
Hence the unfair prejudice remedy was introduced as an implicit instruction to the courts to liberalise and broaden the law to allow for more petitions by minority shareholders. [3]
To bring an action, one must be a member (a shareholder) of the company one complains against (this is defined by s.112 Companies Act 2006, the source of all sections hereafter, unless otherwise stated), or a number of members so long as they do not together hold a majority of votes. [4] If they did hold a majority of votes, then they would be able to control the company and should not be relying on court to sort out their problems. Also able to bring actions are shareholder nominees, those "transmitted" shares by operation of law (s.994(2)), those transferred shares without yet having been registered as members and the Secretary of State (s.995). Shareholders may assert conduct was unfairly prejudicial even if it was before they joined the company [5] and they may claim against a person who has already sold their shares (so the wrongdoer cannot escape [6] ). But once a claimant shareholder has sold his own shares and is no longer a member, no claim may be brought. [7]
Unlike cases under trust law, there is no equivalent maxim that "he who comes to equity must come with clean hands" (because it does not say it in the statute). But it will be highly relevant how honourably a claimant may have acted to whether the relief should be granted. [8] Sometimes unfair prejudice claims reveal a tangled history of "she did that, so I did this, and then she..." where it may prove difficult to discern who was really worse. Several cases have held that the controllers of a company may not use corporate assets to fight their side. [9]
;s.996 Powers of the court under this Part
(1) If the court is satisfied that a petition under this Part is well founded, it may make such order as it thinks fit for giving relief in respect of the matters complained of.
(2) Without prejudice to the generality of subsection (1), the court’s order may—
- (a) regulate the conduct of the company’s affairs in the future;
- (b) require the company—
- (i) to refrain from doing or continuing an act complained of, or
- (ii) to do an act that the petitioner has complained it has omitted to do;
- (c) authorise civil proceedings to be brought in the name and on behalf of the company by such person or persons and on such terms as the court may direct;
- (d) require the company not to make any, or any specified, alterations in its articles without the leave of the court;
- (e) provide for the purchase of the shares of any members of the company by other members or by the company itself and, in the case of a purchase by the company itself, the reduction of the company’s capital accordingly.
The typical award made is for a minority shareholder's shares to be purchased at a fair value.
The Company Law Review [10] decided that it would not update the unfair prejudice provisions for the Companies Act 2006. It had examined various proposals that the Law Commission had made, [11] but was unenthusiastic. A salient feature of the action is the sheer volume of cases brought, often with long complicated histories, as shareholders dig into the dirt of the past, with which to bring evidence of "unfair prejudice". Active case management has been one solution being pursued, since the Civil Procedure Rules 1998. [12] The others included,
The Company Law Review explicitly rejected the last two ideas.
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Liquidation is the process in accounting by which a company is brought to an end in Canada, United Kingdom, United States, Ireland, Australia, New Zealand, Italy, and many other countries. The assets and property of the company are redistributed. Liquidation is also sometimes referred to as winding-up or dissolution, although dissolution technically refers to the last stage of liquidation. The process of liquidation also arises when customs, an authority or agency in a country responsible for collecting and safeguarding customs duties, determines the final computation or ascertainment of the duties or drawback accruing on an entry.
In corporate law in Commonwealth countries, an oppression remedy is a statutory right available to oppressed shareholders. It empowers the shareholders to bring an action against the corporation in which they own shares when the conduct of the company has an effect that is oppressive, unfairly prejudicial, or unfairly disregards the interests of a shareholder. It was introduced in response to Foss v Harbottle, which had held that where a company's actions were ratified by a majority of the shareholders, the courts will not generally interfere.
The United Kingdom company law regulates corporations formed under the Companies Act 2006. Also governed by the Insolvency Act 1986, the UK Corporate Governance Code, European Union Directives and court cases, the company is the primary legal vehicle to organise and run business. Tracing their modern history to the late Industrial Revolution, public companies now employ more people and generate more of wealth in the United Kingdom economy than any other form of organisation. The United Kingdom was the first country to draft modern corporation statutes, where through a simple registration procedure any investors could incorporate, limit liability to their commercial creditors in the event of business insolvency, and where management was delegated to a centralised board of directors. An influential model within Europe, the Commonwealth and as an international standard setter, UK law has always given people broad freedom to design the internal company rules, so long as the mandatory minimum rights of investors under its legislation are complied with.
Re Saul D Harrison & Sons plc [1995] 1 BCLC 14, [1994] BCC 475, is a UK company law case on an action for unfair prejudice under s.459 Companies Act 1985. It was decided in the Court of Appeal and deals with the concept of members of a business having their "legitimate expectations" disappointed. Vinelott J at first instance had denied the petition, and the Hoffmann LJ, Neill LJ and Waite LJ in the Court of Appeal upheld the judgment.
O'Neill v Phillips[1999] UKHL 24 is a UK company law case on an action for unfair prejudice under s.459 Companies Act 1985. It is the only case thus far in the House of Lords on the provision and it deals with the concept of members of a business having their "legitimate expectations" disappointed.
Re Blue Arrow plc [1987] BCLC 585 is a UK company law case dealing with unfair prejudice under s 459 Companies Act 1985.
Mutual Life Insurance Co. of New York v The Rank Organisation Ltd. [1985] BCLC 11 is a UK company law case dealing with "oppression" under s.20 Companies Act 1948. Goulding J delivered the first instance judgment.
Mergers and acquisitions in United Kingdom law refers to a body of law that covers companies, labour, and competition, which is engaged when firms restructure their affairs in the course of business.
United Kingdom insolvency law regulates companies in the United Kingdom which are unable to repay their debts. While UK bankruptcy law concerns the rules for natural persons, the term insolvency is generally used for companies formed under the Companies Act 2006. "Insolvency" means being unable to pay debts. Since the Cork Report of 1982, the modern policy of UK insolvency law has been to attempt to rescue a company that is in difficulty, to minimise losses and fairly distribute the burdens between the community, employees, creditors and other stakeholders that result from enterprise failure. If a company cannot be saved it is "liquidated", so that the assets are sold off to repay creditors according to their priority. The main sources of law include the Insolvency Act 1986, the Insolvency Rules 1986, the Company Directors Disqualification Act 1986, the Employment Rights Act 1996 Part XII, the Insolvency Regulation (EC) 1346/2000 and case law. Numerous other Acts, statutory instruments and cases relating to labour, banking, property and conflicts of laws also shape the subject.
Directors' duties are a series of statutory, common law and equitable obligations owed primarily by members of the board of directors to the corporation that employs them. It is a central part of corporate law and corporate governance. Directors' duties are analogous to duties owed by trustees to beneficiaries, and by agents to principals.
Ebrahimi v Westbourne Galleries Ltd [1973] AC 360 is a United Kingdom company law case on the rights of minority shareholders. The case was decided in the House of Lords.
Re Tottenham Hotspur plc [1994] 1 BCLC 655 is a UK company law case concerning unfair prejudice under s 459 of the Companies Act 1985, now s 994 Companies Act 2006.
Atlasview Ltd v Brightview Ltd[2004] EWHC 1056 (Ch) is a UK company law case, which concerns a claim for unfair prejudice and raised the question of barring a claim if attempted to recover for reflective loss. The case is a notable precedent because it makes clear that a nominee shareholder is also a legitimate petitioner for unfair prejudice.
Shareholder oppression occurs when the majority shareholders in a corporation take action that unfairly prejudices the minority. It most commonly occurs in non-publicly traded companies, because the lack of a public market for shares leaves minority shareholders particularly vulnerable, since minority shareholders cannot escape mistreatment by selling their stock and exiting the corporation. The majority shareholders may harm the economic interests of the minority by refusing to declare dividends or attempting a squeezeout. The majority may physically lock the minority out of the corporate premises and even deny the minority the right to inspect corporate records and books, making it necessary for the minority to sue every time it wants to look at them. An important concept in law pertaining to shareholder oppression is the "reasonable expectations" of the minority shareholder. The "fair dealing" standard is also sometimes used by courts.
Re London School of Electronics Ltd [1986] Ch 211 is a UK company law case concerning unfair prejudice.
The corporate veil in the United Kingdom is a metaphorical reference used in UK company law for the concept that the rights and duties of a corporation are, as a general principle, the responsibility of that company alone. Just as a natural person cannot be held legally accountable for the conduct or obligations of another person, unless they have expressly or implicitly assumed responsibility, guaranteed or indemnified the other person, as a general principle shareholders, directors and employees cannot be bound by the rights and duties of a corporation. This concept has traditionally been likened to a "veil" of separation between the legal entity of a corporation and the real people who invest their money and labor into a company's operations.
Corporate litigation in the United Kingdom is that part of UK company law which gives investors the right to sue the directors of a company, or vindicate another wrong to the company, particularly where the board of directors does not wish to act itself.
Directors' duties in the United Kingdom bind anybody who is formally appointed to the board of directors of a UK company.
Canadian corporate law concerns the operation of corporations in Canada, which can be established under either federal or provincial authority.
The oppression remedy in Canadian corporate law is a powerful tool available in Canadian courts, unique in breadth and scope compared to other examples of the oppression remedy found elsewhere in the world.