Court rules on ‘unfair prejudice’ claim

Posted: 31st July 2012

A minority shareholder who claims that he suffered ‘unfair prejudice’ due to allegedly excessive remuneration awarded to the majority shareholder has succeeded in his case at the Court of Appeal.

The appellant, who owned 25 per cent of the shares in an estate agency company, claims that the company became insolvent and went into liquidation as a result of excessive remuneration paid to the holder of the remaining 75% of the shares in the company.

He also argued that another business was permitted to use the company’s trading name without payment of licence fees and that the goodwill in that trading name was sold at an under-value shortly before the company’s voluntary liquidation.

The appellant issued a petition under the Section 994 of the Companies Act 2006, claiming that the affairs of the company had been conducted in a manner which was unfairly prejudicial to his interests as a minority shareholder.

The petition was dismissed at first instance after a judge ruled that there had been no unfair prejudice to the appellant. That was on the basis that a perusal of the company’s annual accounts, which were neither requested nor inspected by the appellant, would have revealed the level of the majority shareholder’s remuneration.

Allowing the appellant’s appeal against the dismissal of his petition, Lady Justice Arden said that there were ‘pointers to the conclusion’ that the majority shareholder’s remuneration had been excessive.

Lady Arden, sitting with Lords Justice Aikens and Kitchin, ruled that the judge at first instance had erred and that the hearing of the petition should have been adjourned for a further hearing to determine the amount of the loss to the company resulting from the payments made to the majority shareholder.

Lady Justice Arden said that, other than the upholding of his appeal, it would be inappropriate to grant any further relief to the appellant at this stage of the case as it has still to be determined whether his minority shareholding has any value.