Nath Solicitors breaks down what’s involved in unfair prejudice claims and when minority shareholders can use them to protect and enforce their rights.
An unfair prejudice claim (or petition) is a wide-ranging and powerful legal remedy available to shareholders of a company. It’s one of the most effective ways minority shareholders can protect their rights. Claims may be brought against a range of parties but are usually brought against majority shareholders who are damaging the interests of minority shareholders or against directors engaged in harmful conduct.
What are the Grounds for an Unfair Prejudice Claim?
The procedure is set out in section 994 of the Companies Act 2006.
A member (shareholder) of a company may apply to the court for an order under s994 on the grounds that:
- The company’s affairs are being or have been conducted in a manner that is unfairly prejudicial to the interests of members generally or of some part of its members
or
- an actual or proposed act or omission of the company (including an act or omission on its behalf) is or would be so prejudicial
Examples of Unfair Prejudice
Courts have held that unfairly prejudicial conduct can include:
- Directors colluding with majority shareholders and acting in breach of their fiduciary duties to the company
- Director-shareholders awarding themselves clearly excessive remuneration
- Exclusion of minority shareholders from company management, in breach of an agreement or understanding that they would be involved
- Failure to consult or inform the minority regarding management matters, where it was understood that such consultation would occur
What are the Remedies for Unfair Prejudice?
Under section 996 of the Companies Act 2006, the court has wide discretion in granting remedies when unfair prejudice against a minority shareholder has been established. A non-exhaustive list of possible remedies is highlighted in section 996(2). They include:
- Requiring the company to:
- refrain from doing or continuing an act complained of, or
- do an act that the minority shareholder says they have not done
- Allowing legal proceedings to be brought on behalf of the company by such person or persons and on such terms as the court may direct
- Placing restrictions on when the company can change its articles of association
However, the most commonly sought remedy is an order requiring the majority shareholders to purchase the minority’s shares, at a price determined by the court.
In Lecaille v Lecaille and National Parking Enforcement, 2025, the court ordered a husband to purchase the shares of his ex-wife in the parking fine company they had set up when they were married.
The couple were the only two shareholders in the company, but their relationship had deteriorated to such an extent that the husband believed his rights as a shareholder were being unfairly prejudiced. The wife’s conduct included volatile outbursts in front of staff, the unilateral cancellation of thousands of parking fines worth potentially several hundred thousand pounds, and generally not fulfilling her duties to the company. The case is an interesting illustration of the wide-ranging situations in which a section 994 petition can be brought. Quoting an earlier case the judge highlighted that, when assessing fairness or unfairness under s994 courts must remember that the concepts are:
flexible and open-textured…capable of application to a large number of different situations.
The case also serves as a reminder that section 994 is only applicable when the behaviour and shareholder disputes complained of relate to the affairs of the company. Some of the alleged behaviour in Lecaille, while unwelcome and no doubt harmful, did not, the court found, constitute company business that was caught by section 994.
Nath Solicitors: Our Expertise
At Nath Solicitors, we are ideally positioned to help you prevent, resolve, and assist with shareholder disagreements and disputes as they arise. If you need advice or assistance, please contact us on 0203 983 8278 or get in touch with the firm online.