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Company law: unfair prejudice

PLEASE NOTE: Information in this article is correct at the time of publication, please contact DFA Law for current advice on older articles.

A Court of Appeal judgment has highlighted the importance of the unfair prejudice remedy as a means of encouraging proper corporate behaviour in the management of smaller companies. The court allowed a minority shareholder’s appeal against the High Court dismissal of his unfair prejudice petition, finding that the approach of the judge at first instance had been wrong in principle.

The court held that a sole director had breached his duties by fixing his remuneration by reference to his own interests, contrary to his duty as a director of the company and this amounted to unfairly prejudicial conduct.

What is unfair prejudice?

A member of a company may petition the court for relief if:

  • the company’s affairs are being, or have been, conducted in a manner that is unfairly prejudicial to the interests of the company’s members generally or of a part of the members, including at least the petitioner himself; or
  • an actual or proposed act of the company is or would be prejudicial.

The courts take a wide view of prejudice suffered by a shareholder and are flexible in their approach. If the court finds that unfair prejudice has occurred, it has wide powers of relief, including the power to make a buyout order for the non-controlling shareholder’s shares to be purchased by the respondents to the petition.

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