Unfair prejudice claims & minority shareholder rights

• Case studies
• FWJ takeaway

If you are a minority shareholder, you have legal rights. Where those in control of a company misuse their power or act unfairly, the law provides a clear remedy through an unfair prejudice claim.

At Francis Wilks & Jones, we have advised minority shareholders and business owners on disputes since 2002. We act to protect shareholder rights and recover fair value when company affairs have been conducted improperly.

What is an unfair prejudice claim?

An unfair prejudice claim allows a shareholder to challenge conduct that harms their interests in a company.

Section 994 of the Companies Act 2006 provides that a member of a company may petition the court on the ground that the company’s affairs are being conducted in a manner that is unfairly prejudicial to the interests of its members.

Under section 994, a shareholder may petition the court if the company’s affairs are being conducted in a way that is unfairly prejudicial to their interests. It is one of the primary legal remedies used in serious minority shareholder disputes.

What amounts to unfair prejudice?

Unfair prejudice depends on the facts of each case. The court considers whether the conduct is both:

• Prejudicial (causing harm to the shareholder’s interests), and
• Unfair in the context of the company relationship.

Common examples include:

• Exclusion from management or board participation
• Withholding dividends without proper justification
• Diverting business or assets to another company Issuing new shares to dilute minority ownership
• Breaching the company’s articles of association or shareholders’ agreement
• Misuse of company funds or conflicts of interest

We assess the evidence carefully to determine whether the legal test is met before advising on the next steps.

Can you bring an unfair prejudice claim against directors?

An unfair prejudice petition is brought against the company under section 994. However, the conduct complained of often relates to the actions of directors who control the company.

Where directors misuse their powers, exclude a shareholder, or breach agreed arrangements, their conduct may form the basis of the claim. The court can then make orders that address the consequences of that behaviour.

How do you bring an unfair prejudice claim?

Many disputes begin with correspondence and negotiation. If resolution cannot be achieved, a formal court petition may be required.

The typical process involves:

1. Initial legal review – assessing evidence and considering settlement options.
2. Letter before claim – setting out concerns, legal grounds and proposed remedies.
3. Issuing a petition in the Chancery Division under section 994 of the Companies Act 2006.
4. Disclosure and evidence gathering – reviewing accounts, board minutes and communications.
5. Valuation and settlement discussions – determining fair value or buy-out terms.

Many cases resolve before trial once the likely outcome becomes clear.

What remedies are available to minority shareholders?

Under section 996 of the Companies Act 2006, the court has broad powers to remedy unfair prejudice. Under section 996 of the Companies Act 2006, the court may make such order as it thinks fit to give relief in respect of the matters complained of.

Orders can include:

• Requiring the majority shareholders (or the company) to buy out the minority shares at fair value
• Regulating the future conduct of the company
• Reversing transactions that caused loss
• Awarding compensation in appropriate cases
• In rare cases, winding up the company on just and equitable grounds

The power to wind up a company on “just and equitable” grounds arises under section 122(1)(g) of the Insolvency Act 1986.

In practice, the most common outcome is a court-ordered or negotiated share buy-out.

Can unfair prejudice lead to removal of a director?

The court’s primary remedy is usually a buy-out. However, it also has the power to regulate the company’s future affairs.

Depending on the circumstances, this may include changes to management or governance arrangements. In some cases, disputes involving director conduct are resolved through negotiated exits or restructuring of control.

Each case turns on its facts and the relief sought in the petition.

Can minority disputes be resolved without court action?

Yes. Many disputes are resolved through negotiation once legal positions and valuation issues are clarified.

We regularly assist clients with:

• Mediation and structured settlement discussions
• Negotiated share purchases or exits
• Revising shareholder agreements to prevent future disputes

The aim is to achieve a commercially sensible outcome while protecting the shareholder’s position.

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Our shareholder disputes team at FWJ includes

If you are facing a minority shareholder dispute or considering an unfair prejudice claim, contact our team to discuss your position and next steps.

Supportive and friendly with partner-led involvement, I would recommend Francis Wilks & Jones to anyone facing a similar situation.

A shareholder who turned to us after discovering that his co-shareholder was profiting well from their business while he was being paid a pittance. We helped him find a way out of the business by selling his shares