If you are involved in a shareholder dispute, as shown in the article here you can apply to the court to resolve your difficulties.
If you choose to solve a dispute with your business partner or other shareholder dispute by pursuing an order from the court under a s994 minority shareholders petition what is it that the court will order if you are successful. That is, what will you get?
According to s996 of the Companies Act 2006 the court has the following powers:
If the court is satisfied that a petition under this Part is well founded, it may make such order as it thinks fit for giving relief in respect of the matters complained of.
Without prejudice to the generality of subsection (1), the court’s order may—
a. Regulate the conduct of the company’s affairs in the future;
b. Require the company—
(i) to refrain from doing or continuing an act complained of, or
(ii)to do an act that the petitioner has complained it has omitted to do;
(c)authorise civil proceedings to be brought in the name and on behalf of the company by such person or persons and on such terms as the court may direct;
(d)require the company not to make any, or any specified, alterations in its articles without the leave of the court;
(e)provide for the purchase of the shares of any members of the company by other members or by the company itself and, in the case of a purchase by the company itself, the reduction of the company’s capital accordingly.
You will note from part (1) quoted above that the court has very wide ranging powers under s 996. Any decision made under this section is therefore referred to as being at the court’s discretion.
This means if your petition is successful the court has the power to grant any order that it thinks is the best solution to the problem after having considered the facts of the case. However, yhe most frequent order that is given by the court in response to a s994 petition though is for the purchase of shares under s996(2)(e).
Usually this will involve purchase of the shares of a minority shareholder by the majority shareholder. But, in rare circumstances the roles can be reversed, with a majority shareholder being bought out. If the shareholders in dispute own shares on a 50/50 basis, the court must come to a decision, based on all the facts, as to who has the right to buy out the other party.
If you obtain an order for purchase of your (or your opponent’s) shares the next question you will face is how are they to be valued.
This will involve the instruction of experts either jointly or separately, and will be essentially on the basis of one of three alternatives decided by the court. The alternatives are:
For the shares to be valued as a proportion of the total value of the company as a going concern without any discount for the shares sold being a minority holding.
For the shares to be valued as a proportion of the total value of the company as a going concern but with a discount for the shares sold being a minority holding.
For the shares to be valued as a proportion of the value of the net assets of the company at their break up or liquidation value.
If their any other contentious matters concerning valuation, these will again be decided by the court, on a consideration of all the facts and with a view to achieving a result that the court considers fair.
This article is intended only as a brief summary of some issues regarding s994 petitions and should not be relied on as legal advice.
If you have a dispute, which you believe falls within the subject of this article please contact me to discuss the matter further.
There are numerous methods of settling shareholder disputes. This article is a brief consideration of petitions under s994 of the Companies Act 2006.
S994 petitions are theoretically available to all shareholders including in exceptional circumstances majority shareholders, but are most commonly used for those with a 50% share or a minority shareholding and are often referred to as minority shareholder petitions.
Under S994(1) of the Companies Act you, as the petitioner, must show that a proposed act or omissions, or conduct of the “companies affairs” is unfair and prejudicial to you.
The definition of what constitutes “company’s affairs” is a wide one and could be considered to cover most activity undertaken by a company. But, the definition is not always clear. Rude and offensive behaviour to customers and staff, a request by the respondent for the petitioner to sell their shares and a request by the respondent for the petitioner to resign as a director have all been ruled NOT to fall within the definition of “company’s affairs”
You can issue a s994 petition in relation to conduct of the company’s affairs that has occurred in the past, or is on-going at the time of the petition or is proposed for the future. The petition must show that the matters of which it complains are unfairly prejudicial to you as the petitioner in your capacity as a shareholder (sometimes referred to as being a member) of the company.
Your petition must demonstrate both prejudice and unfairness.
The easiest way to demonstrate prejudice is to provide evidence that your shareholding has lost value or been put in jeopardy. Yet, prejudice is not limited to this damage alone. Your exclusion from management of the company, for example, can also be seen as prejudicial.
What constitutes unfairness is of course a difficult question, but the courts have sought to put some definition to it. The concept of unfairness will be considered by the court objectively against the legal framework of the company under consideration. That is, in consideration of the company’s memorandum and articles of association and other documents which set up the company’s legal framework.
However, equitable principles will also be applied to the exercise of strict legal rights. In the Judgment of the Court of Appeal in the case of Grace v Biagioli [2006] 2 BCLC70 it was stated as follows:
“A useful test is always to ask whether the exercise of the power or rights in question would involve the breach of an agreement or understanding between the parties, which it would be unfair to allow a member (shareholder) to ignore. Such agreements do not have to be contractually binding in order…(for equitable principles to apply)”
The courts have found conduct to be unfairly prejudicial in a number of areas, including the following:
This article is intended only as a brief summary of some issues regarding s994 petitions and should not be relied on as legal advice.
If you have a dispute, which you believe falls within the subject of this article please contact us to discuss the matter further.
Directors duties and Fiduciary duties
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