WS6: Unfair Prejudice Flashcards
What must a petitioner establish for a successful s994 remedy?
Unfairly prejudicial conduct arising from an act or omission of the company / made on the company’s behalf.
Must be done by the company, not by an individual shareholder acting in private capacity.
E.g. not a personal dispute between shareholders
Is the pure act of remaining as a shareholder ‘conduct relating to the company’s affairs’?
No
Can there be an overlap between idea of conduct relating to company vs personal dispute?
Yes, when there is a breach of the implied understanding that shareholders will act properly and in good faith towards one another.
What two things must be proved after O’Neill v Phillips to show Unfair Prejudice
Breach of contract (articles or shareholders’ agreement) OR breach of some fundamental understanding
Court starts with articles then looks at any understandings.
How is unfairness tested?
Looking at “whether the majority had acted or was. proposing to act in a manner which equity would regard as contrary to good faith”
What is NOT always unfair prejudice?
Trivial or technical infringements of the articles
Unlawful conduct
What are examples of unfairly prejudicial conduct?
Exclusion from management: in a small quasi-partnership private company, a member might expect to continue to manage a company based on a fundamental understanding
BUT majority can remove the minority where there are commercially justifiable reasons to do so.
Mismanagement:
In general this doesn’t give rise to UP, unless directors have abused their powers or exercised them for some ulterior purpose
Breach of directors’ fiduciary duties:
Common ground and often successful; examples include misappropriating assets, selling business undervalue, making secret profits
Excessive remuneration / refusal to pay dividends: when decisions cannot be justified by ‘objective commercial criteria’
Who can bring a claim for UP?
A member of the company e.g. shareholder - this is interpreted widely, including court amending the register, etc
What does the court presume as the preferred remedy for a UP claim?
Share purchase order. Court will determine the valuation of the petitioner’s shares.
On what date are the shares valued in a UP share purchase order?
Starting point for valuation is the date of the court judgement. However, the court can pick any date that is appropriate in the circumstances of the case.
What happens if the company / majority shareholder has offered to buy out shares?
If offer is reasonable based on an expert valuation, respondent may be entitled to have petition struck out
Further examples of UP:
Using company as a ‘personal piggy bank’
Depriving minority of dividends while over remunerating the majority
