Unfair Prejudice Remedies: Not Limited To Personal Relief
Several remedies are available for shareholders who bring a successful unfair prejudice claim. But do they extend to remedies for the company itself – or is it limited only to personal relief for the shareholder?
Unfair prejudice may arise where the majority shareholders (who are also often directors) abuse their powers to further their own interests to the detriment of the other shareholders. The result is often the devaluation of their shares, which can lead to the affected shareholders bringing unfair prejudice claims under section 994 of the Companies Act 2006.
In a successful claim, the court has a wide discretion to order appropriate relief. Often, the other party will be ordered to buy out the petitioner's shares at fair price.
In a decision all companies and shareholders should be aware of, the Court of Appeal has concluded that a petitioner can pursue his unfair prejudice claim that seeks a remedy for the company as well as him personally as shareholder.
What was the issue?
In this case1, two businessmen (N and K) set up a cryptocurrency wallet business (Coinomi) in 2016. A dispute arose between them, and N claimed that over a period of time he was excluded from company management (including his removal as a director); and that K misappropriated the company's business and assets, which had been transferred to a subsidiary company (Coinomi BVI).
Notably, N’s petition sought both personal remedies as a shareholder; and relief for the company itself. K asked the court to strike out part of the claim as an abuse of process on the basis that the cause of action vested in the company. He argued that the claim against him as an individual shareholder was improper and he should have sought relief for the company by way of a derivative action under Part 11 of the 2006 Act.
In unfair prejudice cases, the court has power to grant a petitioner such order as it thinks fit for giving relief in respect of the matters complained of, including an order to:
(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 appeal judges ruled in N’s favour: he was genuinely interested in obtaining relief in favour of the company. He was not attempting to bypass the statutory regime for derivative claims to obtain a remedy for the company (which K had contended).
The ruling clarifies that an unfair prejudice claim and the derivative action regime are not necessarily mutually exclusive – it depends on the facts and, clearly, the discernible ‘interests’ of the petitioner in seeking the relief sought.
The judge, Lord Justice Newey, made the point that in such a case, it would not be particularly convenient or practical to insist that a claim for relief in favour of the company be the subject of a separate claim form – in additional to an unfair prejudice petition.
Key takeaway
Unfair prejudice claims can include a genuine claim for relief for the company in certain circumstances, rather than having to issue a separate claim – and further increasing the costs involved.
In any potential unfair prejudice situation, it is vital to take specialist legal advice as to the full scope of remedies you may be entitled to claim and against whom.
1Ntzegkoutanis v. Kimionis [2023] EWCA Civ 1480
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