Unfair Prejudice Petitions

Unfair prejudice can take several forms. Common examples we see include:

• Exclusion from management: Being removed from your role as director, or frozen out of decisions you’d normally expect to be involved in, without proper process or justification.
• Diversion of business or assets: The board directing contracts, opportunities, or company assets toward another entity connected to the majority shareholders, at the minority’s expense.
• Withholding information: Refusing to provide financial statements, board minutes, or other information a shareholder is entitled to see.
• Excessive remuneration: Majority shareholders paying themselves inflated salaries or bonuses in a way that reduces the value available to other shareholders, rather than declaring dividends.
• Breach of a shareholders’ agreement: Where specific rights or protections agreed between the parties, such as consent rights over major decisions, are ignored.

Not every disagreement or poor business decision amounts to unfair prejudice. The court expects the conduct to go beyond ordinary commercial friction and to breach the basis on which the shareholders agreed to work together.

Any member of a company can bring a petition, provided they hold shares in their own name or are recognised as a member minority shareholder. In some circumstances, a majority shareholder can also petition, though this is far less common.

You don’t need to hold a majority stake, or even a substantial minority. What matters is whether the conduct has unfairly prejudiced your interests as a shareholder.

Directors who are not shareholders cannot bring an unfair prejudice petition in that capacity, though a director who also holds shares can rely on their shareholder status as you effectively wear multiple ‘hats’.

1. Attempt early resolution: Before issuing, it’s worth trying to resolve the dispute directly or through negotiation, since courts expect parties to have explored alternatives to litigation.
2. Issue the petition: You issue the petition in the High Court or, depending on the value and complexity of the case, the relevant business and property court, setting out the conduct complained of and the remedy sought.
3. Disclosure and evidence: If early resolution isn’t possible, the case proceeds through disclosure, witness evidence, and potentially expert evidence on valuation. These cases are often document-heavy and turn on company records, correspondence, and the history between the parties, so early evidence-gathering matters.
4. Settlement or trial: Many petitions settle before trial once both sides have a clearer picture of the likely outcome, but you should be prepared for the case to run its full course if a fair settlement isn’t reached.

Section 996 of the Companies Act 2006 gives the court wide discretion to order whatever it considers appropriate. In most petitions, the remedy sought is a share purchase order, requiring the majority shareholders (or the company) to buy out the petitioner’s shares at a fair value, usually determined by an independent valuer or the court itself.

Other remedies are available, including orders regulating how the company’s affairs are conducted going forward or requiring the company to refrain from certain actions. Courts have discretion over both the remedy and the valuation approach, and outcomes vary case by case — there’s no guaranteed formula.

Unfair prejudice is conduct in how a company’s affairs are run that unfairly harms a shareholder’s interests, judged against what was agreed or reasonably expected when they invested. Examples include exclusion from management, withheld financial information, or diversion of business to a connected party.

There’s no fixed statutory limitation period specific to unfair prejudice petitions, but delay can weaken a claim and may affect the remedy the court is willing to order. It’s best to seek advice as soon as you suspect a problem, rather than waiting.

The most common remedy is a share purchase order, requiring the other shareholders or the company to buy the petitioner’s shares at a fair value. The court also has discretion to order other remedies, including regulating how the company’s affairs are conducted.

Yes. Many petitions settle before trial once both sides have exchanged evidence and have a realistic view of the likely outcome. Negotiation or mediation can often resolve a case faster and at lower cost than proceeding to a full hearing.

Yes. There’s no requirement to hold a minority stake specifically — what matters is whether the company’s affairs have been conducted in a way that unfairly prejudices your interests as a shareholder, regardless of the size of your holding.

A section 994 petition is the formal name for an unfair prejudice claim, referring to the relevant provision of the Companies Act 2006. It’s issued in the High Court or business and property courts, setting out the conduct complained of and the remedy sought, typically a buyout of the petitioner’s shares.