Unfair Predjudice Flashcards
What is the purpose of the unfair prejudice remedy under Section 994 of the Companies Act 2006?
It allows minority shareholders to petition the court if the company’s affairs are conducted in a way that is unfairly prejudicial to their interests as shareholders.
What are the two key grounds for bringing an unfair prejudice claim under Section 994(1) CA 2006?
- The company’s affairs are conducted in an unfairly prejudicial manner.
- An actual or proposed act or omission of the company is unfairly prejudicial to the member’s interests.
How does unfair prejudice differ from derivative claims?
Unfair prejudice focuses on the petitioner’s rights as a shareholder and personal remedies, while derivative claims address wrongs against the company as a whole.
What is the most common remedy for an unfair prejudice claim?
A share purchase order, requiring the majority shareholders to buy the minority’s shares at a fair value.
What must a petitioner demonstrate to succeed in an unfair prejudice claim?
That the conduct complained of is both prejudicial to their interests as a member and unfair.
What is the significance of Foss v Harbottle (1843) to minority shareholder remedies?
It established the principle of majority rule and limited minority shareholders’ ability to bring claims, leading to the development of statutory remedies like unfair prejudice.
What role does Section 996 CA 2006 play in unfair prejudice claims?
It grants courts broad discretion to provide remedies, including share buyouts, regulation of future company affairs, or financial compensation.
What type of conduct is typically excluded from unfair prejudice claims?
Personal disputes or disagreements between shareholders that do not affect the management of the company.
How did O’Neill v Phillips (1999) define unfairness in the context of Section 994?
Unfairness must involve a breach of equitable considerations, such as legitimate expectations or abuse of power.
What is a quasi-partnership, and how is it relevant to unfair prejudice claims?
A quasi-partnership is a company where shareholders have an implicit understanding of mutual participation in management. Exclusion from management in such companies often constitutes unfair prejudice.
In which case was exclusion from management deemed unfairly prejudicial due to a quasi-partnership structure?
Ebrahimi v Westbourne Galleries Ltd (1973).
What does the court consider when assessing ‘unfairness’ in an unfair prejudice claim?
Whether a reasonable bystander would view the conduct as unfairly prejudicial.
How can a failure to pay dividends result in unfair prejudice?
If the majority uses their control to withhold dividends unfairly, depriving minority shareholders of a fair return on their investment.
What did Re Sam Weller & Sons Ltd (1990) establish regarding dividend policies?
Withholding dividends without justification can be unfairly prejudicial to minority shareholders.
Can mismanagement of company assets constitute unfair prejudice?
Yes, mismanagement or misuse of company assets that diminishes shareholder value can form the basis of a claim.
What is the role of legitimate expectations in unfair prejudice claims?
Breach of legitimate expectations, such as continued involvement in management, can constitute unfair prejudice, particularly in closely-held companies.
How did Re Saul D Harrison & Sons plc (1995) influence the interpretation of unfair prejudice?
It emphasized the need for a breach of equitable expectations or abuse of power to establish unfair prejudice.
What type of conduct involving share issuance may constitute unfair prejudice?
Share dilution or improper issuance of shares to alter the balance of control unfairly.
In which case was share dilution considered unfair prejudice?
Re a Company (No. 00370 of 1987).
Can financial misconduct by directors form the basis of an unfair prejudice claim?
Yes, actions like excessive remuneration or misappropriation of funds can be deemed unfairly prejudicial.
What remedies might a court order beyond share buyouts in unfair prejudice cases?
Courts may order injunctions, amend the company’s constitution, or regulate future conduct of the company’s affairs.
Why is the remedy of a share buyout particularly common in unfair prejudice cases?
It provides a practical solution by allowing the minority shareholder to exit the company while receiving fair value for their shares.
How does Re Legal Costs Negotiators Ltd (1999) distinguish personal disputes from company affairs?
It held that personal disputes unrelated to company management do not form the basis of an unfair prejudice claim.
What does Section 994(1)(b) CA 2006 address?
It allows claims based on actual or proposed acts or omissions of the company that would be unfairly prejudicial.
Can breaches of fiduciary duty by directors support an unfair prejudice claim?
Yes, if the breach prejudices the petitioner’s interests as a shareholder.
How does Re Bovey Hotel Ventures Ltd (1981) inform the objective test for unfairness?
It established that courts should use a reasonable bystander standard to determine whether the conduct was unfairly prejudicial.
What role does equity play in unfair prejudice claims?
Courts often rely on equitable principles to assess fairness, focusing on legitimate expectations and mutual obligations.
How do courts address the balance between majority rule and minority protection in unfair prejudice claims?
By ensuring that majority decisions do not abuse power or prejudice minority rights while maintaining overall governance stability.
What impact does the petitioner’s conduct have on an unfair prejudice claim?
Petitioners must demonstrate good faith; misconduct or bad faith on their part may undermine the claim.
Can unfair prejudice claims be pursued concurrently with other remedies?
Yes, provided the claims address distinct issues, as illustrated in cases like Phillips v Fryer (2012).
How does the rule in Foss v Harbottle (1843) limit shareholder remedies?
It holds that only the company itself can sue for wrongs done to it, restricting minority shareholders unless statutory remedies like unfair prejudice apply.
What type of company is most commonly involved in unfair prejudice claims?
Closely-held private companies or quasi-partnerships where shareholders often have informal agreements or expectations of involvement in management.
What principle was established in Ebrahimi v Westbourne Galleries Ltd (1973)?
Minority shareholders in quasi-partnerships have equitable protections, and exclusion from management can constitute unfair prejudice.
What is the significance of Section 994 CA 2006 in comparison to previous statutory remedies?
It replaced the narrower ‘oppression’ remedy, offering broader and more flexible protection for minority shareholders.
How does the court determine a fair value for shares in a buyout remedy?
The court considers factors like the company’s financial position, market value, and whether the shares should be valued without a minority discount.
What did Re Bird Precision Bellows Ltd (1986) establish regarding share valuation in unfair prejudice cases?
Minority discounts should generally not apply when the majority is ordered to purchase the minority’s shares.
How does financial loss affect the success of an unfair prejudice claim?
Financial loss is often a key indicator of prejudice, such as loss of dividend income or a decline in share value due to majority misconduct.
Can non-monetary grievances form the basis of an unfair prejudice claim?
Yes, issues like exclusion from management or breach of informal shareholder agreements can constitute unfair prejudice, especially in quasi-partnerships.
Why are unfair prejudice claims particularly important in small private companies?
In small companies, minority shareholders often rely on informal agreements and are more vulnerable to majority abuse or exclusion.
How do courts approach alternative remedies in unfair prejudice claims?
Courts may suggest alternative remedies, such as derivative claims or contractual disputes, if they are more appropriate for the specific grievance.
Can a company’s legitimate business decision still be deemed unfairly prejudicial?
Yes, if the decision disproportionately harms minority shareholders or breaches their legitimate expectations, as in Re a Company (No. 00477 of 1986).
What role does good faith play in the court’s evaluation of unfair prejudice claims?
The petitioner must demonstrate good faith; vexatious or personal motives may lead to dismissal of the claim.
How does Re Macro (Ipswich) Ltd (1994) illustrate breaches of fiduciary duty in unfair prejudice claims?
Directors were found to have acted improperly, misusing company resources and prejudicing minority shareholders.
What impact does a shareholder agreement have on unfair prejudice claims?
Breach of a shareholder agreement may form the basis of a claim, particularly if it affects the petitioner’s rights or expectations as a member.
Can the majority’s failure to consult minority shareholders be unfairly prejudicial?
Yes, especially in quasi-partnerships where mutual consultation and participation are part of the shareholders’ legitimate expectations.
What is the relevance of financial transparency to unfair prejudice claims?
Lack of transparency, such as withholding financial information or excluding shareholders from decision-making, can support a claim.
How do courts assess legitimate expectations in unfair prejudice claims?
Courts consider the nature of the company, informal agreements, and the conduct of parties to determine whether expectations were reasonable and breached.
What role does Section 172 CA 2006 (duty to promote the success of the company) play in unfair prejudice cases?
Breach of directors’ duty under Section 172 can contribute to claims if it results in conduct that is unfairly prejudicial to minority shareholders.
How does the principle of majority rule interact with unfair prejudice remedies?
While majority rule governs corporate decisions, it cannot be exercised in a manner that is oppressive or unfairly prejudicial to minority shareholders.
What distinguishes unfair prejudice claims from oppression remedies under previous statutes?
Unfair prejudice claims are broader and more flexible, addressing a wider range of grievances and providing equitable remedies tailored to specific circumstances.
Can minority shareholders bring an unfair prejudice claim for exclusion from management without a formal agreement?
Yes, if the exclusion breaches informal arrangements or legitimate expectations based on the company’s quasi-partnership nature, as in Ebrahimi v Westbourne Galleries Ltd (1973).
What is the impact of Re A Company (No 00477 of 1986) on unfair share dilution?
It established that issuing shares solely to dilute a minority’s control constitutes unfair prejudice, especially if the dilution serves no legitimate business purpose.
Does an unfair prejudice claim require evidence of intentional harm by the majority?
No, intent is not required. Even unintentional conduct can be deemed unfairly prejudicial if it results in significant harm to the minority’s interests.
How does Re Saul D Harrison & Sons plc (1995) clarify the threshold for unfair prejudice?
It emphasized that unfair prejudice requires conduct that breaches equitable considerations or departs from fair dealing, rather than mere dissatisfaction with company management.
How does the court handle personal disputes that overlap with unfair prejudice claims?
Personal disputes are insufficient unless they relate to the petitioner’s rights or interests as a shareholder, as clarified in Re Legal Costs Negotiators Ltd (1999).
Can minority shareholders claim unfair prejudice for decisions affecting dividend payments?
Yes, withholding dividends unfairly or disproportionately can amount to prejudice, as seen in Re Sam Weller & Sons Ltd (1990).
How does the court determine whether a buyout order should include a minority discount?
Courts typically exclude minority discounts in buyout orders for unfair prejudice claims, as established in Re Bird Precision Bellows Ltd (1986).
What standard does the court apply to determine ‘fair value’ in a share purchase order?
The court assesses fair value by considering the company’s financial condition at the date of the petition or judgment, ensuring equity for both parties.
How does Re Tobian Properties Ltd (2012) highlight the importance of director accountability in unfair prejudice claims?
The case demonstrated that majority shareholders’ refusal to account for financial irregularities constituted unfair prejudice.
What factors influence whether exclusion from management is deemed unfairly prejudicial?
Courts consider informal agreements, the nature of the company, and whether mutual trust and confidence existed, as established in Ebrahimi v Westbourne Galleries Ltd (1973).
Can a single incident of misconduct support an unfair prejudice claim?
Yes, if the incident causes substantial harm to the minority shareholder’s interests, though recurring patterns of conduct often strengthen claims.
What is the significance of the O’Neill v Phillips (1999) case in assessing unfair prejudice?
It clarified that unfair prejudice must involve both prejudice and a breach of equitable expectations, distinguishing it from lawful exercises of majority rights.
Can failure to provide information to minority shareholders form the basis of an unfair prejudice claim?
Yes, withholding information or denying access to financial records may constitute unfair prejudice, especially where transparency is reasonably expected.
How do courts address conflicts between directors and shareholders in unfair prejudice cases?
Courts evaluate whether the conflict stems from improper actions affecting company affairs or personal disputes unrelated to the petitioner’s shareholder rights.
Can unfair prejudice claims address mismanagement that harms the company as a whole?
Yes, mismanagement that disproportionately affects minority shareholders or breaches equitable principles can support a claim, even if it also harms the company.
How does Re Sprintroom Ltd (2019) illustrate the court’s discretion in granting remedies?
The court ordered a buyout after finding that exclusion from management and misuse of company funds amounted to unfair prejudice.
What is the significance of mutual trust and confidence in quasi-partnership unfair prejudice claims?
Breach of mutual trust and confidence, such as exclusion from management, undermines legitimate expectations and can form the basis of a claim.
How does the legitimacy of business decisions affect unfair prejudice claims?
Courts assess whether decisions were made in good faith and for legitimate purposes; otherwise, they may be deemed unfairly prejudicial.
Can unfair prejudice claims address conflicts over company strategy or governance?
Yes, if the conflict results in significant harm to minority shareholders’ interests or breaches their expectations of involvement.
How does financial misconduct by majority shareholders impact unfair prejudice claims?
Misappropriation of assets, excessive remuneration, or other financial misconduct that harms minority interests often constitutes unfair prejudice.
Can personal animosity between shareholders lead to an unfair prejudice claim?
No, unless the animosity translates into actions that affect the petitioner’s rights or interests as a shareholder, as clarified in Re Legal Costs Negotiators Ltd (1999).
How does the court decide on remedies for unfair prejudice?
Remedies focus on restoring fairness, often involving share purchase orders, regulation of company affairs, or compensation, as per Section 996 of the Companies Act 2006.
Does improper exclusion from board meetings constitute unfair prejudice?
Yes.
Does improper exclusion from board meetings constitute unfair prejudice?
Yes, especially in quasi-partnerships where there is an expectation of involvement, as seen in Re a Company (No 00477 of 1986).
Can excessive remuneration to directors form the basis of an unfair prejudice claim?
Yes, if it constitutes financial misconduct that harms the interests of minority shareholders, as demonstrated in Re Tobian Properties Ltd (2012).
What role does good faith play in defending against unfair prejudice claims?
Majority shareholders must demonstrate that their actions were in good faith and aligned with the company’s interests to counter claims of unfair prejudice.
Can withholding dividends in profitable years be considered unfair prejudice?
Yes, if the decision disproportionately affects minority shareholders without legitimate business justification, as in Re Sam Weller & Sons Ltd (1990).
How does Ebrahimi v Westbourne Galleries Ltd (1973) influence claims involving exclusion from management?
It establishes that exclusion from management in a quasi-partnership can constitute unfair prejudice when it breaches mutual trust or expectations.
Can a legitimate exercise of majority voting rights still be deemed unfair?
Yes, if the action breaches equitable principles or legitimate expectations of the minority, as highlighted in O’Neill v Phillips (1999).
What is the relevance of Re Bovey Hotel Ventures Ltd (1981) in unfair prejudice cases?
It reinforced the use of an objective test to assess whether a reasonable bystander would view the conduct as unfairly prejudicial.
Can a minority shareholder seek to wind up the company under unfair prejudice claims?
Typically, no, as unfair prejudice claims under Section 994 focus on remedies like share buyouts, while winding-up petitions are addressed separately under Section 122(1)(g) of the Insolvency Act 1986.
How does the court value shares in a buyout remedy for unfair prejudice?
Shares are valued at fair market value, often excluding discounts for minority holdings, to ensure equitable outcomes for the petitioner.
What are ‘legitimate expectations’ in the context of unfair prejudice claims?
Expectations based on informal agreements, company history, or the relationship between shareholders, particularly in quasi-partnerships.
Can an unfair prejudice claim be brought for failure to consult minority shareholders?
Yes, if the failure breaches informal agreements or legitimate expectations of consultation in company decisions.
Can majority shareholders argue that their actions were commercially justifiable in unfair prejudice cases?
Yes, but the court will assess whether the justification aligns with fairness and equitable treatment of minority shareholders.
How does the court distinguish between personal grievances and legitimate claims of unfair prejudice?
By focusing on whether the conduct affects the petitioner’s rights or interests as a shareholder, rather than personal disputes.
Can improper refusal to register a share transfer constitute unfair prejudice?
Yes, if the refusal lacks a legitimate basis and prejudices the petitioner’s rights as a shareholder.
How does the timing of a petition impact an unfair prejudice claim?
Delayed petitions may weaken claims, particularly if the delay suggests acquiescence or if evidence becomes harder to evaluate over time.
Can multiple shareholders join a single unfair prejudice claim?
Yes, if they share common grievances related to the conduct of the company’s affairs.
How does Re Westbourne Galleries Ltd (1973) influence remedies for quasi-partnership disputes?
It highlights the appropriateness of share purchase orders to resolve irreparable breakdowns in mutual confidence.
What factors guide the court in deciding whether to grant financial compensation as a remedy?
The court considers the extent of financial loss caused by unfairly prejudicial conduct and whether compensation would restore fairness.
Can a shareholder bring an unfair prejudice claim for actions affecting future profits?
Yes, if the actions jeopardize the company’s future viability and prejudice the shareholder’s investment, as seen in Re London School of Electronics Ltd (1985).
Does a petitioner need to show intentional harm to bring an unfair prejudice claim?
No, intent is not required. The focus is on whether the conduct was unfair and caused prejudice, regardless of intent.
Can a breach of fiduciary duty by a director form the basis of an unfair prejudice claim?
Yes, if the breach adversely affects the interests of the minority shareholders or the company.
How does the court handle allegations of personal animosity in unfair prejudice cases?
The court separates personal animosity from issues affecting the petitioner’s shareholder rights and focuses only on conduct prejudicial to their interests as a member.
Can failure to hold meetings constitute unfair prejudice?
Yes, especially in quasi-partnerships or small companies where such omissions may exclude minority shareholders from decision-making.
How does Re Phoenix Office Supplies Ltd (2003) illustrate unfair prejudice in financial misconduct?
The case involved excessive remuneration paid to directors, which was found to prejudice minority shareholders by reducing company profits unfairly.
Can an unfair prejudice claim succeed if the petitioner has acted in bad faith?
It is unlikely, as courts expect petitioners to act in good faith when seeking equitable remedies under Section 994.
What is the significance of the court’s discretionary power under Section 996 of the CA 2006?
It ensures flexibility, allowing the court to tailor remedies, such as share purchases or amendments to governance, to address the specific unfairness in each case.
Can a shareholder’s legitimate expectation of job security be grounds for an unfair prejudice claim?
Yes, if the company is a quasi-partnership where such expectations were central to the shareholder agreement, as in Ebrahimi v Westbourne Galleries Ltd (1973).
Can unequal access to company information lead to an unfair prejudice claim?
Yes, withholding information that affects a shareholder’s ability to make informed decisions can be considered unfairly prejudicial.
