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EXAMPLES OF UNFAIRLY PREJUDICIAL CONDUCTMajority taking financial benefits from minority36. Where a majority shareholder arranges the company affairs so that he obtains unjustifiedfinancial benefits at the expense of the minority, eg by transferring to himself the businessand thus depriving the minority shareholder of a share of profits, this is a strong basis for a s994 petition. 35Exclusion from management37. In a small company a shareholder does not have an automatic right to be involved inmanagement issues. A breakdown in relations between members is an ordinary hazard ofbusiness and an insufficient basis for a petition. The House of Lords has rejected the use of s994 as form of corporate no fault divorce 36 so it is important for a petitioner to be able toestablish culpable conduct on the part of the respondent.38. Nevertheless in small quasi partnership companies there is often an informal agreement orarrangement that the shareholders will be involved in the management of the company and acommon basis for a successful petition is the removal of the petitioner from the board ofdirectors.Excessive remuneration/ derisory dividends39. Where a petitioner is no longer or never has been a director, a frequent cause of complaint isthat the directors are paid excessive remuneration resulting in a diminished (or no) dividend.No special rules apply in this scenario. Shareholders, even in small quasi partnershipcompanies, have no automatic right to expect dividends. 37 Specific additional circumstancesneed to be proven to satisfy the unfair prejudice test eg: an informal understanding that theprofits of the company would be distributed in a particular way. Also, where one party isactively involved in running a business it may be fair that that party receives a greater rewardthan a purely passive shareholder.Serious Mismanagement40. Commercial errors and even management incompetence are usually not a proper basis for apetition since these are considered to be part of the vicissitudes of commercial life. Seriousmismanagement by a controlling shareholder has however been held to be a basis for a35 Re London School of Electronics Ltd [1986] Ch 21136 O’Neill v Phillips [1999] 1 WLR 109237 Irvine v Irvine (No 1) 2007 BCLC 349 at 42110 | P a g e
successful s 994 petition. 38 What amounts to serious mismanagement as opposed to ordinarycommercial errors has not been adequately explained by the courts.41. Where mismanagement is of the self-serving variety, such as where assets are used for thepersonal benefit of a majority shareholder then that is a proper basis for a petition. 39Sale of shares at lower value42. A minority shareholder can be unfairly prejudiced by being prevented from selling his sharesto the highest bidder. 40Criminal Conduct43. The conduct of a company’s affairs by the majority in a criminal way can amount to unfairprejudice. 41REMEDIES44. Section 996 of the Companies Act 2006 provides that the court may make“such order as [the Court] thinks fit for giving relief in respect of the matterscomplained of”.45. The 2006 Act expressly sets out examples of potential remedies such as:a. Regulating the affairs of the company by either altering its constitution or forbiddingthe alteration of its constitution;b. Requiring the company to do or to refrain from doing an act such as the disposal ofan asset;.c. Authorising the bringing of proceedings in the name of or on behalf of the company(ie a derivative claim); andd. Ordering the purchase of some or all of the shares in the company.38 Re Macro (Ipswich) Ltd [1994] 2 BCLC 35439 Re Elgindata Ltd [1991] BCLC 95940 Re a Company (No 8699 of 1985) [1986] BCLC 38241 Bermuda Cablevision Ltd v Colica Trust Co Ltd [1998] AC 19811 | P a g e
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