A shareholder in a shareholder dispute who claims that the affairs of the company are being carried on in a manner prejudicial to his interest can petition the court for a remedy under sections 994-996 of the Companies Act 2006 (a re-enactment of earlier similar provisions).
It is well known that even if the shareholders have fallen out, the court will only grant a remedy if it is satisfied that the shareholders’ interests have been “unfairly prejudiced” as a result of acts taken by the company, other shareholders or directors.
No unfair prejudice if the offer to buy shares is reasonable
In the important case of O’Neill-v-Phillips [1999]1 WLR 1092, Lord Hoffman determined that if the respondent to a petition had plainly made a “reasonable offer” to the petitioner complainant for the purchase of his shares then the fact that the petitioner had otherwise been excluded from the management of the company would not be unfairly prejudicial and therefore he would be entitled to have the petition struck out.
Re Sprintroom Limited
The question for determination in the case of re Sprintroom Limited: Prescott-v-Potamianos and another [2019] EWCA Civ932 was this: Was the offer that the respondent had made for the shares prior to the commencement of the proceedings a reasonable offer? Also, in more general terms, what factors might the court take into account? The judge had determined that he could not assess the reasonableness of the offer made without valuation evidence, but the Court of Appeal disagreed and set out a number of factors that should be taken into account i.e.
- The value offered will be important. Generally speaking, however, a fixed offer is less likely to be regarded as fair unless there is a good justification for it. An offer that the parties should appoint an independent expert whose decision would be binding on the parties would be regarded as a fair one. In all circumstances, it will be necessary to show that the minority shareholder had sufficient information about the company to satisfy themselves that any offer was reasonable. This will usually require access to all relevant management and financial documents on which the offer has been based.
- In some cases, the reasonableness of the offer may be linked to the conduct of the parties leading to the current position and valuation of the company.
- It will also be necessary for the person making the offer to be able to demonstrate that it had the resources to have been able to follow
through any offer made.
- Finally, the issue of timing was regarded as relevant. For example, if the offer was made very shortly after the petitioner had been excluded from the company, the court might regard it as reasonable for the petitioner to refuse that offer if he was not satisfied at that point that the relationship had irretrievably broken down.
The importance of making an offer to avoid an unfair prejudice petition
As a result, any offer to purchase shares which are made in the context of a threatened unfair prejudice petition need to be framed carefully. If drafted properly, then it will put the prospective petitioner in an extremely difficult position if he is thinking about refusal.
Following refusal, a complainant in a shareholder dispute would be left with the option of issuing an unfair prejudice petition. If the offer is regarded as reasonable, the petition will be dismissed.
In that case, the petitioner will have paid out his own legal costs, may well have been ordered to pay the company’s legal costs. Even if he establishes unfair prejudice in relation to other conduct, he will have no other remedy.
If you would like to know more about workplace mediation, or if you have a conflict and you are wondering whether mediation would help, please call us and we would be happy to talk it through with you or to arrange a meeting.
Comments