Unfair prejudence and derivative action
- the provisiosn are drafted so as to protect the interest of the members and not just their rights.
- the court haven even gone so far as to refuse to accept that the actual availability of a derivative action constitutes a bar to an unfair prejudice petition. (A Company (1986), Lowe v Fahey (1996))
- Saul D Harrison & Sons - enabling the court in an appropriate case to outflank the rule in Foss v Harbottle.
- Part 11 of the Act makes it clear that derivative actions can be brought only under its provisions or "in pursuance of an order of the court in proceedings under section 994"
Litigation cost
- if a suitable ad hoc offer is made to the petitioner for the purchase or shares or there is a suitable mechanism to this effect in the company articles, but the petitioner decided to proceed with the petition rather than to accept the offer or use the mechanism, that will be seen to be an abuse of the process of the court and the petition will be struck out.
- O'Neill v Phillips - the petitioner is not "unfairly" prejudiced if:
a) he is offered a fair price to sell his shares (non-discounted)
b) there was a mechanism for determination of the price by a competent expert in the absence of agreement
c) to encourage agreement expert should not give reasons for the valuation
d) both sides should have equal assess to information about the company and the equal freedom to make submissions to the expert
e) the responedent should be given a reasonable time at the beginning of the proceedings to make the offer and should not be liable for the petitioner's legal costs incurred during that period
- North Holdings Ltd v Southern Tropics - offer discounted price, could not block the petition
-Benfield Greig Group Plc, Re - valuation by a non-independent expert, could not block the petition
A.994 remedies
s.996 - court has a wide remedial discretion to make such order as it thinks fit for giving relieft.
s.996(2) : 5 powers.
the most commonly used power is to order the petitioner's shares be purcased by the controllers of the company
It is popular because, if personal relationship breaks down, the company can only effectively operates if the minority exit.
The share purchase order gives the petitioner an opportunity to exit from the company. If no such court order, often there will be no buyers (because the company is small). Also the purchase price a third party would pay would usually be much lower (it reflects the harm inflicted on the seller by the unfairly prejudicial conduct)
How to value the price of the share?
- pro rata
- discounted (ex hypothesi a minority holding)
- In a quasi-partnership co., there is a presumption that the shares should not be purchased with a discounted price (Bird Precision Bellows Ltd, Re)
- Irvine v Irvine, if the company is not a quasi-partnership company, the normal principle of discounting a minority shareholding applies.
- Phoenix Office Suplpies Ltd, Re - court refuse a shareholder's petition to have his shares acquired at a non-discounted value, even though he was removed from his directorship by the other 2 incorporators in breach if their common understanding. The reason for the decision was that the conduct of the others had been a response to the petitioner's unilateral decision to sever his relations with the company, which could be seen as a prior and more fundamental breach of the original understandings among the 3 people involved.
Criteria to determine whether the company is a quasi-partnership company (Ebrahimi v W):
- the members must have set up the association based on mutual trust and confidence
- expected to be involved in management
- there is some lock-in of the members to the company
Valuation on the base that the company will go on or it will go to liquadation?
- if the shares are valuated based on the assumption that the company will go bust, it will yield a lower value
- normally "going concern basis" will normally be used, but depends on facts of case
Timing: when the shares are to be purchased, or the date when the petition was presented?
- Profinance Trust SA v Gladstone - former is presumptive value date (except there is a general fall in the market, the unfair prejudicial conduct had deprived the co. of its business)
Court can still order other remedies. This is not clear whether the "no reflective loss" principle applies (Atlasview ltd v Brightview, see 17-13)
s.122 Insolvency Act 1986
- a company may be wound up compusorily on a peition presented to it by a contributory.
- contributory includes a fully paid-up shareholder provided that he or she has a tangible interest in the winding-up. e.g. if the company has a surplus of assets over liabilities. (Bellador Silk Ltd)
- it is derived from partnership law
- if the company is propering, the court to winding up might kill the goose that might lay the golden egg
- with the introduction of the unfair prejudice remedy, one might argue that the role of the winding up remedy should be restricted
- a Pratice Direction seeks to discourage petitioner to ask for winding up + unfair prejudice, unless the petitioner really mean to apply to wind up the company.
- Virdi v Abbey Leisure - if some alternative remedy is available and the petitioner is unreasonably pursuing a winding-up remedy, the court need not grant such remedy
- RA Noble (Clothing) Ltd. - the court has denied a petition based on unfair prejudice because the conduct of the petitioner does not merit it, but has granted a winding-up order because mutual confidence among the quasi-partners had broken down.
- O'Neill v Phillips - re state the law, that the winding up jurisdiction is, no wider than the unfiar prejudice jurisdiction.
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