Shareholder and Director Disputes – Blog 3

  • Shareholder Dispute

Part 3 – Who can complain to the Court?

The ability to petition the Court under s.994 Companies Act 2006 to complain about unfair prejudice in relation to the management of “the company’s affairs” is generally confined to a person who is a “member” of the company. In substance this means a person who is on the register of members or should be on the register of members of the company.

It is therefore important to impress on your clients that the statutory books of the company should be kept up to date as it is the register of members that is determinative and not the annual return or any other filed documents at Companies House.

But I have always been treated as a member!

If a client maintains that he/she has always been treated as a member and the majority member blocks registration it may be possible to make an application to court to rectify the register of members; or even to complain that the failure to register the membership is itself evidence of unfair prejudice.

Any exceptions to the rule?

There are a couple of limited statutory exceptions that enable a personal representative of a deceased member or a trustee in bankruptcy of a member to petition though such situations are not frequently met. However it is not unusual to encounter a situation where a share is held on trust and one has to consider whether a nominee member can petition and if so on what grounds and whether the beneficial owner of the shares can become a member and complain about past unfair prejudice.

What is meant by “the company’s affairs”?

The court has also held that if a person is a member of a parent company it is possible for an unfair prejudice petition to be presented by that member in respect of the affairs of a subsidiary company. The court in that situation adopts a realistic approach to the definition of “the company’s affairs” as including the affairs of the subsidiary company ( Gross v Rackind ). The phrase “the company’s affairs” has to be carefully considered as s.994 is not concerned with the enforcement of private arrangements amongst the members rather it is aimed at providing a remedy where there has been unfair prejudice in relation to the conduct of the “company’s affairs”. Often the dividing line between private arrangements and the “company’s affairs” is difficult to discern particularly where informal arrangements are asserted to have been agreed by the members ( Re Leeds United Holding plc).

Any Limitation Act issues?

It is also worth reminding your clients that if they do want to use the unfair prejudice procedure there is no limitation period but the court does expect the member to “get on” with the petition and not leave it nine years before complaining about unfair prejudice as occurred in one case (Re Grandactual Ltd).

Written by Hugo Groves of Enterprise Chambers and Senior Partner Jeremy Boyle of Summit Law LLP.

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Disclaimer

The information and any commentary on the law contained in this article is provided free of charge for information purposes only.

No responsibility for its accuracy and correctness, or for any consequences of relying on it, is assumed by any member or employee of Summit Law LLP. The information and commentary does not and is not intended to amount to legal advice and is not intended to be relied upon.

You are strongly advised to obtain advice from a Solicitor about your specific case or matter and not to rely on the information or comments in this article.