An unfair prejudice claim under Section 994 of the Companies Act 2006 may arise when majority shareholders, who are often also directors in the company, misuse their powers to promote their own interests to the disadvantage of the minority.
In order to prove unfair prejudice, the conduct in question must relate to the running of the business and affect you in your capacity as a shareholder. If this can be established, then the next stage is to demonstrate that the conduct is both unfair and prejudicial. Examples of unfair conduct may be directors failing to award dividends, failing to provide information to shareholders or consult with them or breaching fiduciary duties.
The Claim
In Pickering v Hughes and Other, which formed part of a much wider family dispute and is one of a large number of proceedings, Ms Pickering brought an unfair prejudice petition under S.994 in her capacity as a shareholder of Portbond Limited against three directors after Portbond, and its subsidiary London Wiper Company Limited (LWC), were placed into administration. She accused the directors of steering the two companies towards failure and then engineering a pre-pack sale to a connected company. She claimed that as a result, the connected company acquired £27 million in assets for £6.5 million. Furthermore, Ms Pickering asserted, amongst other things, that her dismissal and the removal from the employment of her ally also amounted to unfair prejudice.
The High Court’s Decision
The High Court dismissed her claim, finding that none of the allegations of unfair prejudice was made out as they were supported by minimal evidence. In its view, there were reasonable grounds for both the dismissal of Ms Pickering and her ally. These were not driven by any improper motives and therefore did not result in a breach of duty or unfair prejudice.
The contentions regarding the pre-pack administration business sale were also dismissed. The Court accepted the directors’ assertions that they had not purposefully pushed the companies into administration and concluded that they had acted in what they deemed to be the best interests of the company in appointing administrators after causes out of their control, such as the Covid-19 pandemic, resulted in the companies’ insolvency. Furthermore, the judge found that the pre-pack sale price had been a proper one that had been endorsed by the administrators.
Comment
The judgment emphasises the perils of bringing wide-ranging assertions by way of an unfair prejudice claim that is not supported by sufficient evidence. While the case failed, the High Court nevertheless addressed the issue of remedies and cautioned against issuing proceedings under S.994 on the presumption that the remedy awarded will be a share buy-out. Although the Court acknowledged that this may be the most common order, it stressed that it was only one of a number of possible orders that could be made following a successful claim for unfair prejudice. In certain circumstances, such as where the relevant companies have entered into an insolvency process (as was the case here), a share buy-out will simply not be appropriate.
If you are involved in a shareholder dispute and would like advice as to what your options are, please contact our experienced dispute resolution team via email.
