Section 994 of the Companies Act 2006 governs shareholders’ petitions to the court where the company they hold shares in are conducting affairs may be unfairly prejudicial to their interests or identity as a shareholder.
Examples of unfairly prejudicial conduct
Several examples of unfairly prejudicial conduct include the exclusion of shareholders from important decisions or meetings, having shares diluted without consent, and being barred from accessing certain information within the company that other shareholders can. The two main conditions for an unfair prejudice claim are that the conduct must be related to company affairs and must be objectively both unfair and prejudicial at the same time.
There are no mandatory pre-action protocols or requirements in place for a shareholder to serve unfair prejudice petitions; this means that they are not necessarily required to file any Letters of Claim or initiate negotiations with the other party. However, it is important to note that it is expected by the courts that parties will engage in alternative dispute resolution (ADR) or allow chances for discussion, negotiation, and settlement before escalating to court action.
Benefits of ADR
Parties that engage in ADR are more likely to reach an agreement without needing the court’s intervention, spend less on legal advice and representation, and experience lower levels of disruption to a company’s business. With these benefits in mind, the court tends to adopt the view that claimants who disregard possibilities of ADR are adversarial and impulsive. In these types of cases, they are more likely to face negative cost orders, even if the outcome of the case is in their favour, and pay most of their compensation award in court fees.
Given the complexity some shareholder disputes and unfair prejudice actions can have, shareholders are generally encouraged to seek professional legal advice to assess their case. This gives them a clearer picture of the merits and drawbacks on a variety of options. Early-stage legal intervention or engagement in ADR methods such as mediation or negotiation, where appropriate, often cause much less damage to commercial relationships and are far more attractive in terms of time and cost restraints.
Given the complexity of business relationships, shareholders are best served by taking a considered approach—carefully assessing their options and making well-informed decisions when disputes arise.
Contact Nath Solicitors
If you need advice or assistance, please contact Nath Solicitors on 0203 983 8278 or get in touch with the firm online.