Avoiding a petition for unfair prejudice – the conduct within your company

Solicitor, Callum Duff explains the examples of conduct that may give rise to an unfair prejudice petition.

An unfair prejudice petition may be presented as a remedy for a shareholder within a company who is being oppressed by the conduct of the majority shareholder(s). For example, if the majority shareholders conduct the company’s affairs in a manner which is unfairly prejudicial to the minority shareholders, a petition may be presented.

There are a whole host of examples of conduct that may give rise to an unfair prejudice petition. For instance:

• Breaching a fiduciary duty;
• Mismanagement of the company;
• Excluding a member of the company from management;
• Breaching articles of association or shareholders agreement;
• Failing to pay dividends;
• Diluting the shareholding of the company;
• Removal of auditors;

and the list could go on.

However, you should also be aware of the exceptions where such conduct may be permitted. There are circumstances where unfair conduct will not be deemed to be prejudicial, and vice versa there are circumstances where prejudicial conduct will not be deemed unfair.

In RE Cardiff City Football Club (Holdings) Ltd [2022] a minority shareholder of the football club presented a petition, having felt that he had been unfairly prejudiced when the company made an open offer of shares which was accepted by just one shareholder and resulted in that shareholder increasing his shareholding from 94.22% to 98.3% whilst the petitioner’s shareholdings were decreased from 3.97% to 1.18%. The petitioner’s shareholdings had been diluted. In that case the court ruled that there was a good commercial reason for the deciding to dilute the shares and, therefore, there were no grounds for an unfair prejudice petition.

If you are concerned or have questions regarding the conduct of your company in the context of unfair prejudice, then please contact a member of the Commercial Dispute Resolution team on 0161 832 3434.