Unfair prejudice claim by a majority shareholder

Year Published: 2021

An unfair prejudice claim may be brought by a shareholder of a company where the company’s affairs are being conducted in a manner which is unfairly prejudicial to the interests of members generally, or some part of its members, in their capacity as such (including at least the shareholder him or herself). Whilst we would usually expect an unfair prejudice claim to be brought by a minority shareholder, in the recent case of Macom GmbH v Bozeat and others [2021] EWHC 1661 (Ch) a claim was made by a majority shareholder against the minority shareholder.

 

What happened?

The case involved a company which was owned by its majority shareholder, a German corporate entity, and a husband and wife who held a minority stake.  Whilst the corporate shareholder was the majority shareholder with 60%, the husband was a director of the company and, pursuant to a Shareholders’ Agreement, had a casting vote which enabled him to control the company’s board.

The relationship between the husband and the corporate member’s appointed director deteriorated and the corporate shareholder decided to withdraw its financial and IT support from the company. As a result of this, the husband prevented the corporate shareholder from accessing company information, announced that there would be no meetings of the board until further notice and deliberately excluded the other director from correspondence with the company’s accountant.

The corporate shareholder claimed that the minority shareholder’s behaviour amounted to unfair prejudice.

 

Court decision

The Court found in favour of the petitioner, the majority shareholder, in holding that the conduct had been unfairly prejudicial. It held that the majority shareholder had a right to be involved and consulted on the company’s affairs under the Articles of Association and the Shareholders’ Agreement.

However, unusually, the Court declined to order the respondent to purchase the majority shareholder’s shares as it felt that such a remedy would be disproportionate on the basis that the corporate shareholder had not suffered any financial loss.

Instead, the Court made an order regulating the conduct of the company’s affairs. In particular, the order required the company’s shareholders to adhere to the provisions of the Articles of Association and the Shareholders’ Agreement and it also imposed some of its own additional terms including a requirement to hold regular board meetings and to prepare and maintain board minutes. The judgment noted that where the unfair prejudice relates to governance and management of the company, an order regulating the future conduct of the company’s affairs may be the most appropriate remedy.

 

Significance of the decision

The case is an interesting one as it raises the question of what the appropriate order in the event of a successful unfair prejudice claim will be and it acts as a rare example of a majority shareholder bringing an unfair prejudice claim against a minority shareholder.

It also serves as a useful reminder of the potentially severe consequences of not adhering to a Company’s Articles of Association and Shareholders’ Agreement and of a shareholder that has control of the company disregarding the other shareholders’ rights.

If you think that you have an unfair prejudice claim, it is worth remembering that bringing an unfair prejudice claim is a lengthy and expensive process and the Court has a wide discretion to make such order as it thinks fit for giving relief in respect of the matters complained of. It is therefore best to consider all avenues before considering proceeding with such a claim.

If you would like any more information, please contact Sophie Adshead, Solicitor in our Corporate and Commercial team on  0161 475 1235  or [email protected]


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