Paul Fuller secures judgment in High Court Unfair Prejudice proceedings

42BR's Paul Fuller, instructed by HBB Solicitors’ Mike Hadfield and Milhana Peries, secure judgment in High Court Unfair Prejudice proceedings

This case concerned Unfair Prejduce proceedings brought by the Petitioner, a joint director and shareholder in the First Respondent (a company selling car parts online). The Second Respondent was a joint director and shareholder in the company. 

In 2020 in unrelated circumstances, the Petitioner received an eighteen month prison sentence; he was ultimately released after serving nine months.  Whilst the Petitioner was serving his sentence, the Second Respondent transferred the stock of the First Respondent to a non-incorporated trading entity, and diverted the company’s business to a newly incorporated company. The Second Respondent took those steps without the Petitioner’s knowledge, or his approval in accordance with the First Respondent’s articles. As a result the First Respondent ceased trading, and was ultimately dissolved.

The Petitioner brought proceedings under s 994, Companies Act 2006, alleging that his interests as a shareholder had been unfairly prejudiced by the Second Respondent’s actions. The Second Respondent defended the proceedings, averring that his actions were justified to protect the First Respondent’s business from reputational damage following the Petitioner’s imprisonment.

The court found that the Second Respondent’s actions satisfied the test for unfair prejudice, and ordered the Second Respondent to purchase the Petitioner’s shares in the First Respondent company, for a price to be determined at a later hearing. The judge also awarded the Petitioner his full costs of the proceedings.  

Handing down judgment, ICC Judge Jones said: 

“In my judgment, it is plain that the company’s affairs were conducted in a manner which were unfairly prejudicial to the Petitioner. There is no dispute that he was excluded. It is significant that no steps were taken in accordance with the articles, even to remove the Petitioner as a director. Whilst a director, he was entitled to be treated as a director… it seems absolutely clear to me that there was a diversion of corporate assets and business opportunities. Such a step should not have been taken unilaterally. That, along with the exclusion of the Petitioner is clearly inequitable conduct. I do not consider that, either in law or in fact, the Petitioner’s imprisonment justified that.”

s 994, Companies Act 2006 gives recourse to minority shareholders whose interests have been unfairly prejudiced by the manner in which the company has been conducted. Under s 996, the court has a wide discretion as to relief to rectify the prejudice so caused. The most common remedy is an order requiring the purchase of the minority shareholder’s shares, for a price to be determined by the court. 

The Petitioner will need to show that the manner in which the company’s affairs have been conducted were (1) unfair, and (2) prejudicial to his interests as a shareholder. This case serves as a clear reminder that the test for unfair prejudice is objective. The court is concerned with the effect the conduct has had on the Petitioner. The wrongdoer’s motives are irrelevant. 

Case: Re T5 Cotswold Parts Ltd [2024] UKHC

15th Feb 2024

Paul Fuller

Call 2021 | Admitted as a Solicitor: 2011