As a general rule, when a shareholder holds fewer than 50% of the shares in a company, they are considered to be a minority shareholder. Unfortunately, being in this position has historically shown people to be vulnerable to unfair treatment by majority shareholders.
The introduction of s.994 of the Companies Act 2006 aimed to tackle this risk faced by minority shareholders.
What is unfair prejudice?
Unfair prejudice can manifest for a minority shareholder in three different ways:
- Failure by the other shareholders to abide by the company’s Articles of Association;
- Breach of a contractual agreement, such as a shareholders’ agreement; and/or
- Breach of duty by a director to the company.
Whilst in most cases, a loss as a result of any of these action does occur, an actual loss need not occur. Instead, the affected party need only to show that they would have lost out on what should have been expected -i.e., their buy-out sum for their shares was less than it should have been.
When this occurs, a petition is issued.
How is a petition used?
Essentially, a petition is used the same way a statement of claim is, except it is served on the other parties, as opposed to being filed at court.
A petition can be brought in the High Court, but it can also be brought in the Country Court, provided that they have the relevant authority to wind-up the company, should the need arise.
Additionally, there are statutorily no time-limits to the issue of a s.994 petition – albeit one should be mindful of limitations imposed by the Limitation Act when issuing.
Company assets may not be used on either side of the petition – the dispute is between the shareholders and funds in the company must be left alone during the dispute, and certainly not used to fund any litigation.
What can a petition achieve?
A petition can achieve you the rectification of the matter in any which way you desire; you may choose to be reinstated as a shareholder, you may choose to receive compensation, it is a decision for you to make, and for us to assist with.
Interim remedies include a freezing order on company assets whilst the issue is resolved, and interim payments being made where appropriate.
How can we help?
At Martin Kaye Solicitors, we have experience in helping minority shareholders fight back against unfair prejudice imposed by the company and other shareholders. If this might be something with which you need assistance, please feel free to contact us on law@martinkaye.co.uk or 01952 272222.
