HomeFWJ TakeawayRisks that Directors Face: Unfair Prejudice Claims

Under Section 994 of the Companies Act 2006 a shareholder can bring a claim against a co-shareholder for any loss (i.e. prejudice) they have suffered as a result of the other shareholder’s actions.

This is commonly used in small to medium-sized companies where the shareholders and Directors are similar groups of individual and where an imbalance develops, beyond what the original parties’ “reasonable expectations” were.

 An unfair prejudice claim is quite easily confused with a Company claim by shareholders (usually referred to as a Derivative Claim – see below) and it must be remembered that an Unfair Prejudice claim is appropriate for claims for losses by a shareholder or specific group of shareholders.  It cannot be used as a ground to commence proceedings brought for losses to the Company as a whole, which is a matter for the Company to deal with via its appointed directors.

Please see our booklet entitled “How to protect Minority Shareholder interests” which provides more detail on these remedies in relation to minority shareholders.

Unfair Prejudice claims will usually be subject to an initial review by the Court as to the merits of the claim, as the Courts do not like to interfere in the running of a company unless absolutely required.  

An itinerant shareholder with an unsupported or poorly thought-through claim will quickly be dismissed, and could even find him/herself liable for the legal costs incurred by the Director or Directors defending such proceedings.

It is not uncommon for a shareholder to petition for the just and equitable winding-up of a Company and for this petition to be accompanied by an Unfair Prejudice petition.  In these circumstances, it is possible that the Court will order the Company to buy that shareholder’s shares (if they agree), or alternatively making an Order that one shareholder (or group of shareholders) buys the others out.  

Contact us in confidence