What is unfair prejudice?

Unfair prejudice refers to a situation in which the rights or interests of a minority shareholder or a specific class of shareholders in a company are adversely affected or harmed by the actions or decisions of the majority shareholders, the company’s directors, or the company itself.

Key aspects of unfair prejudice include:

Prejudicial conduct:

Unfair prejudice may arise from conduct that is considered detrimental, unjust, or prejudicial to the interests of the minority shareholders. This conduct can take various forms, such as exclusion from decision-making, diversion of corporate opportunities for personal gain, or actions that unfairly impact the value of the minority shareholders’ investment.

Subjective element:

Unfair prejudice is a subjective concept, meaning that it depends on the specific circumstances of each case. What constitutes unfair prejudice can vary based on factors such as the terms of shareholder agreements, the company’s articles of association, and common law principles.

Legal framework:

In jurisdictions like England and Wales, legal provisions, such as Section 996 of the Companies Act 2006, provide a statutory basis for minority shareholders to bring a claim for unfair prejudice. This legal remedy allows minority shareholders to seek redress from the courts when they believe that their rights have been unfairly compromised.

Making an unfair prejudice claim

An unfair prejudice claim is a legal remedy available to minority shareholders who believe that their interests have been unfairly prejudiced by the actions of the majority shareholders or the company itself.

This type of claim arises under Section 994 of the Companies Act 2006, and it provides a mechanism for minority shareholders to seek redress when they believe that the affairs of the company are being conducted in a manner that is unfairly prejudicial to their interests.

Key features of an unfair prejudice claim include:

Grounds for claim:

A minority shareholder may bring an unfair prejudice claim if they can demonstrate that the actions or decisions of the majority shareholders or the company have amounted to unfair prejudice against their interests.

Unfairly prejudicial conduct:

The conduct that can give rise to an unfair prejudice claim is broad and may include actions such as diverting company assets for personal benefit, conducting the affairs of the company in a manner that disregards the minority shareholders’ interests, or breaches of a shareholder agreement.

Section 996 of the Companies Act 2006:

The statutory basis for unfair prejudice claims is primarily found in Section 994 (formerly Section 459) and Section 996 of the Companies Act 2006. These sections provide the legal framework for minority shareholders to petition the court for relief.

Petition for unfair prejudice:

The process begins with the minority shareholder filing an unfair prejudice petition with the court. The petition outlines the alleged unfair prejudicial conduct and requests appropriate remedies.

Remedies:

If the court finds that unfair prejudice has occurred, it has broad discretion to grant remedies. Remedies may include orders to rectify the situation, share buyouts, or other measures aimed at restoring fairness and protecting the minority shareholders’ interests.

Respondents to the petition:

Respondents to an unfair prejudice petition may include the majority shareholders, directors, or the company itself. The court considers the specific circumstances of each case and the actions that have led to the alleged unfair prejudice.

Member of a company:

The right to bring an unfair prejudice claim is not limited to shareholders but extends to other members of the company, such as debenture holders and those who hold a specific interest in the company.

Unfair prejudice claims play a crucial role in safeguarding the rights of minority shareholders and maintaining the principles of fairness and equality in the corporate governance of a company.

These claims provide a legal avenue for addressing grievances arising from actions that are detrimental to the legitimate interests of minority stakeholders.

How can ARC assist?

ARC Costs maintains an extensive legal network of expert commercial litigation solicitors with a track record of success on these types of cases. We would be happy to pass on your details to assist in your unfair prejudice claim. 

In addition to introducing you to a solicitor, we can also assist in the recovery and negotiation of legal costs in shareholder dispute cases, whether you are the paying or receiving party.

ARC Costs are highly experienced in advising and assisting with costs issues and disputes in different areas of law. As Costs Draftsman and Costs Lawyers, we can assist you with your commercial litigation costs issues.

Should you wish to discuss your costs query with us, please contact us on 01204 397302 or via email at info@arccosts.co.uk. Alternatively, you can complete our online query form, and we will contact you to discuss your query further. We can provide expert legal advice on costs in our free, no obligation initial consultation.

We may receive payments from third party solicitors on our panel to whom we may refer your claim. We will never charge you for any referrals made to our panel of third parties.