When you’re running a company, decision-making usually lies with the directors and majority shareholders. However, minority shareholders do have certain rights too. If they believe that the company’s affairs are being conducted in a way that’s unfairly prejudicial, they can even take the matter to court and request a remedy. Sounds serious? Well, it can be.

What Exactly is Unfair Prejudice?

Under Section 994 of the Companies Act 2006, unfair prejudice claims give minority shareholders the chance to step in and protect their interests. But to succeed, they need to show two things:

1. The conduct complained of is prejudicial.
2. The conduct is unfairly prejudicial.

You need both. If one’s missing, the claim won't get very far.

If the court’s convinced, it might order a remedy. This could mean regulating how the company operates moving forward or requiring the wrongdoing party to buy out the minority shareholder’s stake on terms the court deems fair. But again, the key is in those two elements – unfair and prejudicial conduct.

What Does “Prejudicial” Mean?

Prejudice here doesn't just mean hurt feelings or minor annoyances. Minority shareholders need to show they’ve suffered actual harm. This could be financial damage, like the value of their shares dropping significantly, or other forms of economic harm.

But prejudice isn’t limited to monetary damage. It could also involve being excluded from company decisions, especially if the shareholder was part of a small company with a ‘quasi-partnership’ vibe (basically, where everyone expected to work closely and collaboratively). For example, if you were promised an active role in managing the company and suddenly find yourself out of the loop, that could count as prejudicial.

That said, there's a catch. If the conduct doesn’t actually leave the shareholder worse off, there’s no case here, no matter how questionable the behaviour might seem.

What About “Unfair” Conduct?

Now, unfairness is where things can get a bit tricky. It’s not necessarily about proving bad intentions. Instead, the question is whether a reasonable person would look at the behaviour and say, “Yeah, that’s just not fair.”

Courts are careful here – they avoid injecting personal or subjective ideas of fairness into business disputes. Instead, they follow clear principles, starting with the company’s constitution (like its articles of association and shareholder agreements). Breaking those rules is often a strong indicator of unfairness. However, if the conduct is in line with what was agreed upon in these documents, it likely won’t be classified as unfair.

Things can get a bit more complicated when you’re dealing with ‘legitimate expectations’. For example, if a shareholder had a reasonable expectation to be involved in managing the company and was sidelined, it could be considered unfair. These expectations often come up in small businesses where informal agreements play a bigger role.

Challenges with Unfair Prejudice Claims

Even though minority shareholders have statutory protections, bringing these claims isn’t straightforward. Proving both unfairness and prejudice to the court can be a steep climb.

On top of that, there are defences that could derail the claim. For instance:

• If the petitioner turns down a fair offer to buy their shares, the court might say, “Well, that’s basically what you wanted, so no further action is needed.”
• If the company’s documents provide clear steps for exiting (like selling shares), and the petitioner tries to sidestep those, the court might not be sympathetic.
• Delays in raising the issue or evidence of the petitioner accepting the conduct in question (known as acquiescence) could also weaken the case.
• And finally, if the petitioner has engaged in their own misconduct, they’re unlikely to win much sympathy.

The Importance of Early Legal Advice

If you’re considering making or defending an unfair prejudice claim, getting legal advice early on is crucial. It can help you understand the merits of your case, weigh up your options, and decide on the best strategy. Predicting outcomes in these cases can be challenging, given the lack of rock-solid precedents, but solid advice will go a long way.

For minority shareholders, there might be alternative routes to explore. For example, you could seek permission to bring a derivative action (where you sue in the company’s name) or even apply to wind up the company on just and equitable grounds. Both options have their own set of challenges, but they’re worth considering in some circumstances.

For majority shareholders or directors, particularly if the claim has some merit, it might be worth addressing the issue head-on. Often, offering a fair price to buy out the minority shareholder’s stake can resolve a dispute before things escalate.

Final Thoughts

At the heart of these claims is the balance of fairness among shareholders and ensuring that no party takes undue advantage of their position. While the law does provide a safety net for minority shareholders, it comes with hurdles that make the process anything but straightforward. Whether you’re the petitioner or the respondent, navigating these claims successfully means understanding not just the law but also the practical and strategic implications.

If you find yourself in this situation, don’t wait to act. Seek expert guidance and take the necessary steps towards resolving your dispute in a way that protects your interests. After all, fairness in business isn’t just about playing by the rules – it’s about ensuring everyone gets a fair shot.

Legal disclaimer

The matters contained within this article are intended to be for general information purposes only. This blog does not constitute legal advice, nor is it a complete or authoritative statement of the law in England and Wales and should not be treated as such.

Whilst every effort is made to ensure that the information is correct, no warranty, either express or implied, is given as to its’ accuracy, and no liability is accepted for any errors or omissions.

Before acting on any of the information contained herein, expert advice should always be sought.

© Melissa Worth, May 2025