Actions Against Directors for Unfair Prejudice
Unfair prejudice claims arise where a company has, is or will be conducted in such a way that unfairly prejudices the relevant interests of the members, or some portion of the members (for example, the shareholders), including the petitioner. These cases frequently involve the majority shareholders (who are often the directors) from acting in a way that unfairly prejudices the interest of minority shareholders. In these circumstances, the courts have a wide range of powers to regulate the affairs or the business if they are found to have unfairly prejudiced the members involved.
What makes a claim successful?
These cases are very fact-specific and a lot will depend on the particular circumstances as to whether or not the actions were unfairly prejudicial. For a claim to be successful, the following two elements must be met:
- The conduct was prejudicial in that it either caused prejudice or harm to all or some of the members.
- The conduct was unfair.
It is an objective test that does not need to show intention or actions in bad faith. It is enough for the court to find that a reasonable bystander would have viewed the actions as unfair prejudice.
The courts will initially examine the articles of association and any shareholder agreements . to determine whether the conduct is in accordance with these. However, even conduct that does not conform with these documents will not necessarily give rise to a claim. Generally, the petitioner will show that the actions have reduced the value of their share, thus showing they have suffered prejudice.
What qualifies as unfair prejudice?
As stated above, each case will turn on its facts as there is no set list of conduct that is classified in this way. Some examples of what might qualify as unfair prejudice include:
- Breaches of the articles of association or shareholder agreement
- Abuse of power
- Mismanagement of the business
- A failure to pay dividends to shareholder.
- Breaches of the directors’ fiduciary duties
- Failure to provide shareholders with information or to consult with them on relevant issues.
- Transferring the business to another company in which the director/majority shareholder has an interest
- Exclusion from management
- Directors giving themselves excessive bonuses
What are the remedies for unfair prejudice?
The court has a wide range of powers in these cases and a lot will depend on the particular facts of the case. The court can order anything that it sees fit to remedy the situation. The most common remedy is that the party who caused the unfair prejudice will be ordered to buy-out the affected members at a fair value. Other remedies can include:
- Ordering the company to do a certain action
- Preventing the company from doing a certain action
- Regulating the future conduct of the company
Contact our Specialist Commercial Litigation Lawyers in the UK
Our commercial litigation lawyers have a wealth of knowledge and expertise in relation to unfair prejudice claims. We can assist clients in minimising risks of such claims arising and preventing situations from escalating with the right preparation.
We can also guide and represent clients in both bringing and defending such claims. If you require further information or assistance, please complete the online enquiry form or email us at email@example.com.