Shareholder and Director Disputes – Blog 8

  • Shareholder Dispute

Remedies in Unfair Prejudice litigation

In the last two instalments of our series on unfair prejudice petitions we considered valuation issues in outline and in particular concentrated on the Court’s approach to the valuation of the shares of the company involved. The valuation exercise is a usual course to take as the petitioner is normally looking for the remedy of a “buy out” order. However once unfair prejudice has been established the Court can make any order it thinks fit though there are a number of specific orders which are listed in s.996 Companies Act 2006. It is not the case that the petitioner is restricted to asking for a buy out order and for those petitioners who want to continue their investment in the company it is appropriate to craft more specific relief in the petition.

What order might the Court make?

For instance the petitioner may be making a narrow complaint and the Court can then make an order remedying the matter. One example might be a situation where the petitioner is complaining of the continued non declaration of dividends; the Court could make an order that the company pay monies representing previously undeclared dividends or order that dividends be paid in the future (provided that distributable profits permit). Another example might be where the petitioner is complaining of an issue of shares under which he/she was not offered a proportion of the shares in accordance with existing pre-emption rights; in that situation the Court could cancel the issue of shares and/or order the transfer of shares to the petitioner. Of course if the petitioner wants to “part ways” with the other shareholders then a buy out order is the only effective way of producing that result.

Another order that the Court has made in a number of cases is to order the company to repay loans that have been made by the petitioning member to the Company. Thus it can be quickly appreciated that the Court has a wide discretion and in cases where a director/member is removed from employment in addition to a buy out order the petitioner can ask for damages for wrongful dismissal. It is therefore advisable to consider carefully the real remedy that the petitioning client wants to obtain before the petition is issued.

Could the Court refuse to order any relief?

It would be an unusual situation if the Court found that unfair prejudice has been established but it refused to order any relief. However there are examples where the Court has taken that route and invited the presentation of a winding up petition so that a liquidator can sort out the shareholder conflict (Re Full Cup International Ltd).

What could influence the Court order?

A final point to note in relation to remedies is that the Court may be influenced in deciding on an appropriate remedy by the way in which the petitioner has conducted himself/herself as a member. In equity there is a doctrine commonly referred to as “clean hands” and this requires that if a petitioner is seeking relief from a Court of equity and he/she is guilty of some misconduct then this may affect the type of relief the Court is prepared to order.

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 rely on the information or comments in this article.