Unfair Prejudice Examples | Conduct That Amounts to It
Conduct that can amount to unfair prejudice includes any action or omission in a company’s affairs that unfairly harms the interests of one or more shareholders under Section 994 of the Companies Act 2006. The test is objective, meaning the court looks at whether the conduct is unfairly prejudicial as a reasonable bystander would view it. It is not necessary for a shareholder to show bad faith or that anyone intended to cause prejudice.
Fairness is judged in the context of the broader company, relationship between the parties and their involvement in and dealings with each other and the company. The commercial relationships and the content of any contracts or agreements (or historic relationships) are all obviously relevant. The content of the Articles of Association of the company and any Shareholders agreement will also be highly relevant. If a Shareholder has breached their content or has taken steps that are otherwise clearly not agreed or without authority (such as the removal of money or assets), claims and petitions for unfair prejudice will typically be more straightforward.
Importantly even if the conduct is/was not in accordance with the Articles of Association, it does not necessarily make the conduct unfair. The court will not be concerned or distracted by trivial or technical breaches of Articles of Association or other contracts or agreements. The conduct must be unfairly prejudicial.
Typical examples of unfair prejudice conduct (non-exhaustive) can include;
- 1. The removal of money or other benefits and/or assets from a company without authorisation
- 2. Directors awarding excessive bonuses
- 3. Directors failing to award dividends
- 4. Allotments of shares and rights issues such as dilution
- 5. Acting without authority confirmed via board resolutions
- 6. Excluding a Shareholder from management or decision-making where there the Shareholder has been involved historically
- 7. Diverting business and opportunities of the company to other ventures
- 8. Any abuse of power without proper authority- such as amending the Articles of Association
- 9. Breach of Director fiduciary duties
- 10. Failure to comply with statutory obligations such as relating to meetings of the company and delaying accounts; and/or depriving Shareholders of information, access to information and/or documents.
