Simply Alarming: when might an unfair prejudice petition fail?

5 August 2020

In the recent case of Simply Alarming Security Ltd [2020] 7 WLUK 330 the Court refused to order that the Respondent director/shareholder had to purchase the shares of a shareholder/former director (the Petitioner) who alleged that she had been the subject of unfairly prejudicial conduct by the Respondent. 
The Petitioner alleged that she had been unfairly excluded from the management of the company, however, insufficient information was provided to support her position and the court could not decide, on the statements of case, who was responsible for her exclusion from management. This case stresses the importance of assessing the seriousness and relevance of the unfair and prejudicial conduct at the outset as well as evaluating culpability where a director is excluded from management decisions, particularly where there is a question of misconduct. 

Unfair prejudice

Under section 994 of the Companies Act 2006 a shareholder may bring an unfair prejudice petition and seek relief where:

  1. the affairs of the company are being or have been conducted in a manner that is unfairly prejudicial to the interests of the shareholders generally, or some part of the shareholders, in their capacity as such (including at least him/herself); or
  1. an actual or proposed act or omission of the company is or would be so prejudicial. 

We have written previously about whether a director’s breach of duty could serve as a bar to an unfair prejudice claim here. There is no rule of law that a breach of fiduciary duty will render exclusion from management fair; it is a question of fact and degree based on the seriousness and relevance of any such breach.

The facts

In Simply Alarming Security Ltd, the Petitioner and Respondent were the two directors of and each owned 45% of the shares in the company. They were both involved in the management of the company, however the Petitioner alleged that the Respondent had excluded her from the management of the company, had suspended her and removed her as a director, thereby subjecting her to unfair prejudice.

In his Defence, the Respondent submitted that the Petitioner had breached a number of her duties as a director and the terms of their partnership.

The Petitioner alleged that she had offered to sell her shares to the Respondent for £74,500. The Respondent conversely alleged that he had only offered to purchase her shares at a fair value on the basis  that the company was defunct and an application had been made to have it struck off the register.

Decision

The Judge held that whilst excluding a director from the management of the company was in principle unfair conduct entitling a petitioner to relief, misconduct on the part of a petitioner could lead to the court to refuse relief depending on the seriousness and the degree of relevance of such misconduct. This was established in the case of Richardson v Blackmore [2005].

The Judge could not decide that he had jurisdiction to find unfair prejudice and grant the sale of the shares as requested by the  Petitioner since it could not be determined from the statements of case who was responsible for the Petitioner’s exclusion from management of the company.

 

Comment

This case highlights the importance of clearly establishing and evidencing that the conduct experienced was both unfair and prejudicial to the petitioner. The full judgment in this case is not yet available , once it becomes available it will be interesting to see the Judge’s reasoning for not being able to decide who was responsible for the Petitioner’s exclusion from management of the company.

A further significant difficulty the Petitioner in this case faced was that going to trial would have been disproportionate to the anticipated value of her shares.

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