Understanding Unfair Prejudice and Minority Shareholder Oppression Claims

In Short

• An unfair petition (minority shareholder oppression) claim lets shareholders challenge conduct that treats them unfairly under the Companies Act 2006.

• Typical examples include exclusion from management, misuse of assets, or withholding dividends without justification.

• Courts often order a buy-out of the minority shareholder’s shares at fair value.

Tips for Businesses
If you believe you are being treated unfairly, keep clear records and seek early legal advice. Try resolving disputes through negotiation or mediation first. Where court action is needed, be prepared to prove both unfairness and prejudice, with buy-outs being the most common remedy.

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Table of Contents

• What is an Unfair Petition Claim?
• Who Can Bring an Unfair Petition Claim?
• Grounds for an Unfair Petition Claim
• The Process of Filing an Unfair Petition Claim
• Remedies Available in Unfair Petition Claims
• Alternatives to Unfair Petition Claims
• Key Takeaways
• Frequently Asked Questions

As a minority shareholder in a company, you may sometimes feel that your interests are being unfairly disregarded by those in control. This situation can be frustrating and potentially damaging to your investment. Furthermore, the law provides protection for minority shareholders through unfair prejudice petitions, also known as minority shareholder oppression claims. Failing to address such issues can lead to significant financial losses and ongoing disputes that may harm the company’s operations. This article will explain what unfair petition claims are, how they work, and what steps minority shareholders can take to protect their rights.

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What is an Unfair Petition Claim?

An unfair petition claim, also known as a minority shareholder oppression claim, is a legal action brought by a shareholder who believes their interests have been unfairly prejudiced. This claim is typically made under Section 994 of the Companies Act 2006. The law aims to protect minority shareholders from unfair treatment by the majority or those in control of the company.

Examples of unfair prejudice include:

• exclusion from management decisions;
• failure to pay dividends without justification;
• misuse of company assets; and
• breach of the company’s articles of association.

Who Can Bring an Unfair Petition Claim?

Any shareholder of a company can potentially bring an unfair petition claim. However, it is most commonly used by minority shareholders who feel their rights are being infringed upon by the majority. In some cases, former shareholders may also be able to bring a claim if they can demonstrate that the unfair conduct occurred while they were still members of the company.

Morever, it’s important to note that the court will consider the context of the alleged unfair conduct.

Grounds for an Unfair Petition Claim

There are various grounds on which an unfair petition claim can be based. Some common examples include:

• Exclusion from management: if a minority shareholder has been actively involved in the company’s management and is suddenly excluded without good reason.
• Failure to consult: when major decisions affecting the company are made without consulting or informing minority shareholders.
• Misappropriation of assets: if company assets are used for the personal benefit of the majority shareholders or directors.
• Excessive remuneration: when directors or majority shareholders award themselves disproportionate salaries or bonuses.
• Failure to pay dividends: if the company is profitable but consistently refuses to declare dividends without a valid business reason.
• Breach of shareholders’ agreement: when the terms of a shareholders’ agreement are not adhered to by the majority.

The Process of Filing an Unfair Petition Claim

Filing an unfair petition claim involves several steps:

• Gather evidence: collect all relevant documents and information that support your claim of unfair prejudice.
• Seek legal advice: consult with a solicitor specialising in company law to assess the strength of your case.
• Pre-action protocol: follow the pre-action protocol for unfair prejudice petitions, which includes writing to the respondents outlining your claim.
• File the petition: if the matter isn’t resolved, file a petition with the court detailing the unfair prejudice and the remedy sought.
• Court proceedings: the case will proceed through the court system, potentially involving mediation or a full trial.

Remedies Available in Unfair Petition Claims

The court has wide discretion in granting remedies for successful unfair petition claims. Common remedies include:

• Buy-out order: the most frequent remedy, where the court orders the majority shareholders or the company to purchase the petitioner’s shares at a fair value.
• Regulation of company affairs: the court may issue orders regulating the company’s future conduct.
• Amendment of articles: the court can order changes to the company’s articles of association.
• Appointment of directors: in some cases, the court may order the appointment of new directors to ensure fair representation.
• Compensation: the court may order the company or other shareholders to pay compensation to the petitioner.

Alternatives to Unfair Petition Claims

Before pursuing an unfair petition claim, consider alternative dispute resolution methods:

• Negotiation: attempt to resolve the issue through direct discussions with other shareholders or directors.
• Mediation: engage a neutral third party to facilitate negotiations between the parties.
• Arbitration: agree to have the dispute resolved by an independent arbitrator, whose decision is binding.
• Derivative action: in cases where the company itself has suffered harm, a derivative action might be more appropriate.

Key Takeaways

Unfair petition claims, or minority shareholder oppression claims, are crucial tools for protecting the rights of minority shareholders. Common grounds for such claims include exclusion from management, misappropriation of assets, and failure to pay dividends without justification. The court has broad discretion in granting remedies, with the most common being a buy-out order. Before pursuing legal action, consider alternative dispute resolution methods to potentially resolve the issue more efficiently and cost-effectively.

If you have any questions concerning business structures, our experienced business lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to solicitors to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.

Frequently Asked Questions

What is the time limit for bringing an unfair petition claim?

There is no statutory time limit for bringing an unfair petition claim. However, it’s advisable to act promptly as delay may affect the court’s willingness to grant relief.

Can an unfair petition claim be brought against a private limited company?

Yes, unfair petition claims can be brought against both private and public limited companies.