Minority Shareholder in Family Business Succeeds in ‘Unfair Prejudice’ Claim


Minority shareholders may have limited managerial influence but they are very far from powerless and have rights that must be respected. The High Court made that point in coming to the aid of a man whose dividends were unjustifiably suspended after he was excluded from the management of his family business.

The man was a director of two family-owned companies in which he held a 25 per cent stake. After he had to take long-term sickness absence from the business, he contended that various steps were taken that unfairly prejudiced his position as a minority shareholder. He took action under Section 994 of the Companies Act 2006.

Ruling on the matter, the Court was not satisfied that he had been driven from the business by his fellow directors or that there had been a plot to remove him. He remained on friendly terms with other board members during the early part of his absence and plainly wished to leave the business voluntarily.

In upholding his claim, however, the Court noted that there was a change in attitude when he lodged a formal grievance against one of the companies. The matter was properly dealt with in good faith, but ill feeling grew from that point onwards and his fellow directors chose to deploy unfairly prejudicial tactics.

There were, amongst other things, unwarranted threats to suspend his dividends and seek recovery of alleged overpayments. His dividends from one of the companies were unjustifiably suspended whilst his fellow directors received commensurate salary increases. A process of cost-shifting was undertaken so as to suppress the profits of one of the companies.

His removal as a director of that company, whilst not in itself unfairly prejudicial, was part of a creeping process to exclude him from its management. It was not a proper use of the board’s power to remove an inactive director but part and parcel of the interference with his rights as a shareholder.

Given those findings, the Court ruled that he was entitled to be bought out of his shareholdings at a fair market value. The sum due to him would be assessed at a further hearing, if not agreed. The Court expressed sadness that the dispute had led to such ill feeling between family members who formerly got on well together and cared for each other. It was to be hoped that the fractured relationships were not irreparable and that some level of trust would in future be restored.

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