Unfair Prejudice And Obtaining Relief For The Company

To what extent can an aggrieved shareholder seek remedies for a company in an unfair prejudice claim? The specialist corporate lawyers at ParrisWhittaker are experienced in advising shareholders and directors on corporate and commercial disputes.

An important judicial ruling has confirmed that remedies can extend beyond personal relief – to the company itself. It means obtaining fair and proportionate remedies in the end of a director’s breach of duty may not require an unfair prejudice claim and a separate derivative action.

What’s unfair prejudice?

Unfair prejudice arises in circumstances where the majority shareholders (who are frequently directors within the company) abuse their powers to further their own interests to the detriment of the other shareholders. This often leads directly to the devaluation of their shares.

The affected shareholders then have the right to bring an unfair prejudice claim under the Companies (Amendment) Act 2019.

This recent ruling was handed down by the UK’s Court of Appeal¹ and has important persuasive authority on the courts in The Bahamas.

What’s the background?

In 2016, two businessmen (N and K) set up a cryptocurrency wallet business called Coinomi UK but a within a few years, relations soured between the two directors. N claimed he had been excluded from management of the company over a period of time and had been removed as a director.

He also claimed that K had misappropriated company assets by transferring them to a subsidiary company in the British Virgin Islands (BVI). N therefore brought an unfair prejudice claim under the UK’s Companies Act 2006.

In addition to seeking personal remedies from the court, he also sought relief for the company itself – the latter which would ordinarily be sought by way of a separate derivative action. A derivative action is brought in the name of the company to recover its losses from the directors in the event of a breach.

K therefore applied for part of N’s claim to be struck out as an abuse of process, on the basis N was effectively bypassing the derivatives regime.

The remedy question

The courts have wide discretion in unfair prejudice claims to order appropriate relief; usually, an order is made requiring the respondent to buy out the petitioner’s shares at a fair price.

The question for the appeal court was whether N could validly seek a remedy for the company by way of his unfair prejudice petition. The appeal judges found in N’s favour and concluded:

• N was genuinely interested in obtaining relief in favour of the company
• He was not, as K argued, trying to bypass the statutory regime for derivative claims to secure a remedy for the company
• It would not be convenient or practical to insist on a separate claims for relief in favour of the company additional to an unfair prejudice petition
• However, the order should correspond with that to which the company would have been entitled to in a derivative action brought in the company’s name

What does this mean?

The ruling is reassuring for shareholders who have been unfairly prejudiced by the actions or omissions of directors and want to seek a remedy for the company itself in addition to personal relief.

However, while the two regimes – unfair prejudice claims and derivative actions – are not necessarily to be considered as mutually exclusive, each case will depend on the facts and the discernible ‘interests’ of the petitioner in seeking the relief sought.

Always take specialist legal advice in the event of a dispute before taking any further steps, to ensure any unfair prejudice claim you wish to make is as wide-ranging as possible.  We also robustly defend claims on behalf of companies and directors.

Get in touch

For expert representation, contact the experienced corporate and commercial litigation solicitors at ParrisWhittaker as early as possible. You can contact us at +1.242.352.6112

¹Ntzegkoutanis v. Kimionis [2023] EWCA Civ 1480