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You may well be reading this because, as a minority shareholder, you face a situation where your company is being run in a way that unfairly prejudices your interests. Limited rights under company law may have resulted in you, without specific additional protections in the articles of association or a shareholders’ agreement, having little control over key decisions and/or access to information if you are not a director.
Unfair prejudice claims under Section 994 of the Companies Act 2006 provide shareholders with a statutory mechanism to seek remedies, which may include a fair buy-out of your shares, damages, or adjustments to company governance.
However, in many cases, a negotiated outcome is far better. We combine legal expertise, experience with these claims and strategic insight to help clients balance the risks and potential outcomes.
To succeed, a claim must demonstrate:
1. Prejudice – actual or potential harm to the shareholder’s interests; financial loss is not required.
2. Unfairness – the conduct must be objectively unfair, not merely commercially unwise or disappointing.
It is important to understand that the statutory definition is deliberately broad and flexible, giving the courts wide discretion to determine what amounts to unfair prejudice in each case. This flexibility allows the law to address a wide variety of shareholder disputes but also means outcomes can be less predictable, highlighting the importance of early advice, clear objectives, and careful planning.
Exclusion from management or decision-making, despite agreements or legitimate expectations.
Poor oversight or mismanagement by directors, impacting the company’s performance or the value of shares.
Withholding company information, restricting your ability to monitor or protect your interests.
Unjustified withholding of dividends, despite profits or shareholder expectations.
Diversion of business opportunities or company assets to entities controlled by the majority.
Improper dilution of shares or other actions reducing minority shareholder rights.
Timing is critical. Acting promptly helps to preserve evidence, clarify objectives, and explore potential settlement options. Before considering court proceedings, shareholders should:
Document the conduct believed to be unfair.
Consider alternative dispute resolution (ADR) such as mediation.
Record internal attempts to resolve the issue.
Seek early legal advice to assess the strength of the claim.
Set clear and realistic objectives for what they hope to achieve.
Courts intervene only when prejudice is serious and systemic. Minor or technical breaches rarely justify action. Judges consider the size, nature, and structure of the company and the context of shareholder relationships when determining remedies.
Before considering court proceedings, important to check if there is a prior arbitration agreement between the parties. If there was, it is likely that the Court will stay any Court proceedings in favour of arbitration.
Unfair prejudice claims are complex, costly, and inherently unpredictable. Litigation can be lengthy, often requiring:
• Extensive disclosure and evidence.
• Expert valuations.
• Witness testimony.
Defining realistic objectives is essential. In many cases, a negotiated settlement, such as a share buy-out, provides a faster, far less risky outcome than full court proceedings.
Courts have wide discretion to award remedies aimed at restoring fairness. Possible outcomes include:
Share buy-outs – the court can order the company or majority shareholders to purchase the minority shareholder’s shares at a fair value. Valuing shares can be complex, especially in private companies, and may involve expert accountants or valuation reports to reflect goodwill, potential profits, and company assets.
Damages – compensation for losses suffered due to unfair conduct.
Orders regulating company conduct – requiring the company to act, refrain from certain actions, or follow agreed governance procedures.
Governance changes – in limited cases, adjustments to decision-making processes to protect minority rights.
Winding up the company – in extreme situations where the company cannot continue fairly, the court can order it to be dissolved and its assets distributed.
Unfair prejudice disputes are often as much about strategy as they are about law. Our team guides clients to:
Assess the strength of their position.
Develop tactical approaches aligned with commercial objectives.
Set realistic objectives and plan a clear course of action.
Manage risk and control costs via negotiation or mediation.
Pursue or defend claims effectively if litigation becomes necessary.
Get in touch
If you would like to speak with a member of the team you can contact us on:
