Unfair prejudice in United Kingdom Company Law

Authors

  • Zhengyang Fan

DOI:

https://doi.org/10.24203/ajhss.v9i1.6512

Keywords:

Unfair Prejudice', Minority Protection, Corporate Governance Structure

Abstract

It is common that the majority shareholders in a corporation take action that unfairly prejudices the minority. A majority shareholder occupies a dominant position in the decision-making process of the company's affairs and can control the company with the principle of majority rule. In the process of company development, the interests of the majority shareholders may diverge from the interests of the company. In this case, the majority of shareholders may engage in unfair prejudice conduct that harm the interests of the company and minority shareholders for their own benefit. Consequently, to some extent, the principle of majority rule provides the possibility for the controlling shareholders to abuse voting rights, which often constitutes damage to the interests of minority shareholders. In addition, due to the reliance on the controlling shareholder, the directors tend to only take into account the interests of the majority shareholders, with the result that ignore the rights and interests of non-controlling shareholders. Especially in private companies, minority shareholders not only cannot sell their shares in the stock exchanges without restrictions to exit the company, but also may be subject to more severe oppression by the actual controller of the company. When minority shareholders cannot obtain relief within the company, it is necessary for aggrieved shareholders to bring an action against the majority shareholders to protect their rights.

 

However, under the rule in Foss v Harbottle, shareholders only be allowed to sue if they meet the exceptions. Due to the limited application scope of these exceptions, the aggrieved shareholders are often unable to get timely and effective relief in practice. In response to this problem, statutory unfair prejudice provisions are introduced to balance the interests of majority shareholders and minority shareholders, and to prevent shareholder oppression in corporate governance. It emphasizes judicial intervention to protect the legitimate interests of shareholders. Compared with just and equitable winding up and derivative action, the unfair prejudice is regarded as a mechanism for minority protection as it covers a variety of remedies and leaves the court with greater discretion.

References

Derek French, Stephen W Mayson and Christopher Ryan, Mayson, French & Ryan On Company Law (2017-2018 edn, Oxford University Press 2017) 572

Sarah Worthington and L. S. Sealy, Sealy and Worthington's Text, Cases and Materials in Company Law (11th edn, Oxford University Press 2016) 715

Derek French, Stephen W Mayson and Christopher Ryan, Mayson, French & Ryan On Company Law (2017-2018 edn, Oxford University Press 2017) 575

Zhong Xing Tan, 'Unfair Prejudice from beyond, beyond Unfair Prejudice: Amplifying Minority Protection in Corporate Group Structures' (2014) 14 J Corp L Stud 367

Sarah Worthington and L. S. Sealy, Sealy and Worthington's Text, Cases and Materials in Company Law (11th edn, Oxford University Press 2016) 722

Foss v Harbottle, [1843] 3 WLUK 93

Paul L Davies and Sarah Worthington, Gower’s Principles of Modern Company Law (10th edn, Sweet & Maxwell 2016) 960

Paul L Davies and Sarah Worthington, Gower’s Principles of Modern Company Law (10th edn, Sweet & Maxwell 2016) 964

Companies Act 1948, section 210(1)

Ibid.

Derek French, Stephen W Mayson and Christopher Ryan, Mayson, French & Ryan On Company Law (2017-2018 edn, Oxford University Press 2017) 587

Meyer v Scottish Cooperative Wholesale Society Ltd, [1959] AC 324

Companies Act 1980, section 75

Companies Act 1985, section 459; Companies Act 2006, section 994

Companies Act 2006, section 994, 996

Sarah Worthington and L. S. Sealy, Sealy and Worthington's Text, Cases and Materials in Company Law (11th edn, Oxford University Press 2016) 727

Arthur R Pinto, 'Protection of Close Corporation Minority Shareholders in the United States' (2014) 62 Am J Comp L Supp 361

Companies Act 2006, section 996

Companies Act 2006

O'Neill v Phillips, [1999] 1 W.L.R. 1092

Ibid.

Ibid.

Ibid.

Ibid.

Ibid.

Ibid.

Sarah Worthington and L. S. Sealy, Sealy and Worthington's Text, Cases and Materials in Company Law (11th edn, Oxford University Press 2016) 736

Derek French, Stephen W Mayson and Christopher Ryan, Mayson, French & Ryan On Company Law (2017-2018 edn, Oxford University Press 2017) 584

Grace v Biagioli, [2006] 2 B.C.L.C. 70

Ibid.

Ibid.

Sarah Worthington and L. S. Sealy, Sealy and Worthington's Text, Cases and Materials in Company Law (11th edn, Oxford University Press 2016) 731

Walter Woon Cheong Ming, 'A Note on Unfair Prejudice - Section 75 of the U.K. Companies Act 1980' (1983) 25 Malaya L Rev 396

Companies Act 1948, section 210(1)

Anthony O Nwafor, 'The Unfair Prejudice Remedy - A Relief for the Minority Shareholders' (2011) 13 U Botswana LJ 37

Say H Goo and Rolf H Weber, 'The Expropriation Game: Minority Shareholders' Protection' (2003) 33 Hong Kong LJ 71

Paul L Davies and Sarah Worthington, Gower’s Principles of Modern Company Law (10th edn, Sweet & Maxwell 2016) 959

Paul L Davies and Sarah Worthington, Gower’s Principles of Modern Company Law (10th edn, Sweet & Maxwell 2016) 964

Re Saul D Harrison & Sons Plc, [1995] 1 B.C.L.C. 14

Ibid.

Sarah Worthington and L. S. Sealy, Sealy and Worthington's Text, Cases and Materials in Company Law (11th edn, Oxford University Press 2016) 735

Re Saul D Harrison & Sons Plc, [1995] 1 B.C.L.C. 14

Paul L Davies and Sarah Worthington, Gower’s Principles of Modern Company Law (10th edn, Sweet & Maxwell 2016) 964

Harkamal Atwal, 'Self-Interest, Justice and Reciprocity in Unfair Prejudice' (2004) 2004 UCL Jurisprudence Rev 270

Companies Act 2006, section 994

Jennifer Payne, 'Shareholders' Remedies Reassessed' (2004) 67 Mod L Rev 500

Ebrahimi v Westbourne Galleries Ltd, [1972] 2 W.L.R. 1289

Ibid.

Ibid.

Ibid.

Ibid.

Ibid.

Sarah Worthington and L. S. Sealy, Sealy and Worthington's Text, Cases and Materials in Company Law (11th edn, Oxford University Press 2016) 735

O'Neill v Phillips, [1999] 1 W.L.R. 1092

Sarah Worthington and L. S. Sealy, Sealy and Worthington's Text, Cases and Materials in Company Law (11th edn, Oxford University Press 2016) 734

Re Saul D Harrison & Sons Plc, [1995] 1 B.C.L.C. 14

Ibid.

Sarah Worthington and L. S. Sealy, Sealy and Worthington's Text, Cases and Materials in Company Law (11th edn, Oxford University Press 2016) 735

Derek French, Stephen W Mayson and Christopher Ryan, Mayson, French & Ryan On Company Law (2017-2018 edn, Oxford University Press 2017) 583

Arthur R Pinto, 'Protection of Close Corporation Minority Shareholders in the United States' (2014) 62 Am J Comp L Supp 361

Derek French, Stephen W Mayson and Christopher Ryan, Mayson, French & Ryan On Company Law (2017-2018 edn, Oxford University Press 2017) 578

Arthur R Pinto, 'Protection of Close Corporation Minority Shareholders in the United States' (2014) 62 Am J Comp L Supp 361

Ibid.

Sarah Worthington and L. S. Sealy, Sealy and Worthington's Text, Cases and Materials in Company Law (11th edn, Oxford University Press 2016) 742

Arthur R Pinto, 'Protection of Close Corporation Minority Shareholders in the United States' (2014) 62 Am J Comp L Supp 361

Harkamal Atwal, 'Self-Interest, Justice and Reciprocity in Unfair Prejudice' (2004) 2004 UCL Jurisprudence Rev 270

Arthur R Pinto, 'Protection of Close Corporation Minority Shareholders in the United States' (2014) 62 Am J Comp L Supp 361

Zhong Xing Tan, 'Unfair Prejudice from beyond, beyond Unfair Prejudice: Amplifying Minority Protection in Corporate Group Structures' (2014) 14 J Corp L Stud 367

M Rishi Kumar Dugar, 'Minority Shareholders Buying Out Majority Shareholders – An Analysis' (2010) 22 Natl L Sch India Rev 105

Companies Act 2006, section 996

Derek French, Stephen W Mayson and Christopher Ryan, Mayson, French & Ryan On Company Law (2017-2018 edn, Oxford University Press 2017) 586

Re Kenyon Swansea Ltd, [1987] B.C.L.C. 514

Ibid.

Re Bird Precision Bellows Ltd, [1986] 2 W.L.R. 158

Sarah Worthington and L. S. Sealy, Sealy and Worthington's Text, Cases and Materials in Company Law (11th edn, Oxford University Press 2016) 749

Sarah Worthington and L. S. Sealy, Sealy and Worthington's Text, Cases and Materials in Company Law (11th edn, Oxford University Press 2016) 717

Companies Act 1948, section 210(1)

Zhong Xing Tan, 'Unfair Prejudice from beyond, beyond Unfair Prejudice: Amplifying Minority Protection in Corporate Group Structures' (2014) 14 J Corp L Stud 367

Companies Act 1948, section 210(1)

Say H Goo and Rolf H Weber, 'The Expropriation Game: Minority Shareholders' Protection' (2003) 33 Hong Kong LJ 71

Zhong Xing Tan, 'Unfair Prejudice from beyond, beyond Unfair Prejudice: Amplifying Minority Protection in Corporate Group Structures' (2014) 14 J Corp L Stud 367

Companies Act 2006, section 994

Anthony O Nwafor, 'The Unfair Prejudice Remedy - A Relief for the Minority Shareholders' (2011) 13 U Botswana LJ 37

Gross v Rackind, [2005] 1 W.L.R. 3505

Ibid.

Companies Act 2006, section 996

Companies Act 2006, section 994

Companies Act 2006, section 994, 996

Companies Act 2006, section 996(2)

Sarah Worthington and L. S. Sealy, Sealy and Worthington's Text, Cases and Materials in Company Law (11th edn, Oxford University Press 2016) 747

Sarah Worthington and L. S. Sealy, Sealy and Worthington's Text, Cases and Materials in Company Law (11th edn, Oxford University Press 2016) 741

M Rishi Kumar Dugar, 'Minority Shareholders Buying Out Majority Shareholders – An Analysis' (2010) 22 Natl L Sch India Rev 105

Derek French, Stephen W Mayson and Christopher Ryan, Mayson, French & Ryan On Company Law (2017-2018 edn, Oxford University Press 2017) 586

M Rishi Kumar Dugar, 'Minority Shareholders Buying Out Majority Shareholders – An Analysis' (2010) 22 Natl L Sch India Rev 105

Arthur R Pinto, 'Protection of Close Corporation Minority Shareholders in the United States' (2014) 62 Am J Comp L Supp 361

Sarah Worthington and L. S. Sealy, Sealy and Worthington's Text, Cases and Materials in Company Law (11th edn, Oxford University Press 2016) 725

M Rishi Kumar Dugar, 'Minority Shareholders Buying Out Majority Shareholders – An Analysis' (2010) 22 Natl L Sch India Rev 105

Bilkus v King, [2003] EWHC 2516 (Ch)

Ibid.

Ibid.

Ibid.

Ibid.

Ibid.

Sarah Worthington and L. S. Sealy, Sealy and Worthington's Text, Cases and Materials in Company Law (11th edn, Oxford University Press 2016) 717

Companies Act 2006, section 996

Zhong Xing Tan, 'Unfair Prejudice from beyond, beyond Unfair Prejudice: Amplifying Minority Protection in Corporate Group Structures' (2014) 14 J Corp L Stud 367

Robert Goddard, 'Excessive Remuneration and the Unfair Prejudice Remedy ' (2009) 13 Edinburgh L Rev 517

Companies Act 2006, section 994

Sarah Worthington and L. S. Sealy, Sealy and Worthington's Text, Cases and Materials in Company Law (11th edn, Oxford University Press 2016) 732

Companies Act 2006, section 996

Sarah Worthington and L. S. Sealy, Sealy and Worthington's Text, Cases and Materials in Company Law (11th edn, Oxford University Press 2016) 725

Companies Act 2006

Derek French, Stephen W Mayson and Christopher Ryan, Mayson, French & Ryan On Company Law (2017-2018 edn, Oxford University Press 2017) 574

Ibid.

Re Elgindata (No.1), [1991] B.C.L.C. 959

Re Macro (Ipswich) Ltd, [1994] 2 B.C.L.C. 354

Sarah Worthington and L. S. Sealy, Sealy and Worthington's Text, Cases and Materials in Company Law (11th edn, Oxford University Press 2016) 723

Arthur R Pinto, 'Protection of Close Corporation Minority Shareholders in the United States' (2014) 62 Am J Comp L Supp 361

Companies Act 1948, section 210(1)

Bibligraphy

Cases

Foss v Harbottle, [1843] 3 WLUK 93

Meyer v Scottish Cooperative Wholesale Society Ltd, [1959] AC 324

Ebrahimi v Westbourne Galleries Ltd, [1972] 2 W.L.R. 1289

Re Bird Precision Bellows Ltd, [1986] 2 W.L.R. 158

Re Kenyon Swansea Ltd, [1987] B.C.L.C. 514

Re Elgindata (No.1), [1991] B.C.L.C. 959

Re Macro (Ipswich) Ltd, [1994] 2 B.C.L.C. 354

Re Saul D Harrison & Sons Plc, [1995] 1 B.C.L.C. 14

O'Neill v Phillips, [1999] 1 W.L.R. 1092

Bilkus v King, [2003] EWHC 2516 (Ch)

Gross v Rackind, [2005] 1 W.L.R. 3505

Grace v Biagioli, [2006] 2 B.C.L.C. 70

Statutes

Companies Act 1948

Companies Act 1980

Companies Act 1985

Companies Act 2006

Books

Davies P L and Worthington S, Gower’s Principles of Modern Company Law (10th edn, Sweet & Maxwell 2016)

French D, Mayson S W and Ryan C, Mayson, French & Ryan On Company Law (2017-2018 edn, Oxford University Press 2017)

Worthington S and Sealy L S, Sealy and Worthington's Text, Cases and Materials in Company Law (11th edn, Oxford University Press 2016)

Journal Articles

Atwal H, 'Self-Interest, Justice and Reciprocity in Unfair Prejudice' (2004) 2004 UCL Jurisprudence Rev 270

Dugar M R K, 'Minority Shareholders Buying Out Majority Shareholders – An Analysis' (2010) 22 Natl L Sch India Rev 105

Furey N, 'The Statutory Protection of Minority Shareholders in the United Kingdom' (1987) 22 Wake Forest L Rev 81

Goddard R, 'Excessive Remuneration and the Unfair Prejudice Remedy ' (2009) 13 Edinburgh L Rev 517

Goo S H and Weber R H, 'The Expropriation Game: Minority Shareholders' Protection' (2003) 33 Hong Kong LJ 71

Gross N B, 'Figaro, Ferrari and Unfair Prejudice - Can Creditors Actually Use the Oppression Remedy: Canadian Opera Company v. Euro-American Motor Cars' (1991) 13 Advoc Q 115

Ming W W C, 'A Note on Unfair Prejudice - Section 75 of the U.K. Companies Act 1980' (1983) 25 Malaya L Rev 396

Nwafor A O, 'The Unfair Prejudice Remedy - A Relief for the Minority Shareholders' (2011) 13 U Botswana LJ 37

Payne J, 'Shareholders' Remedies Reassessed' (2004) 67 Mod L Rev 500

Pinto A R, 'Protection of Close Corporation Minority Shareholders in the United States' (2014) 62 Am J Comp L Supp 361

Stapledon G P, 'Negligence as Unfair Prejudice' (1992) 4 Corp Bus LJ 77

Tan Z X, 'Unfair Prejudice from beyond, beyond Unfair Prejudice: Amplifying Minority Protection in Corporate Group Structures' (2014) 14 J Corp L Stud 367

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Published

2021-02-26

How to Cite

Fan, Z. (2021). Unfair prejudice in United Kingdom Company Law. Asian Journal of Humanities and Social Studies, 9(1). https://doi.org/10.24203/ajhss.v9i1.6512