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Types of unfairly

prejudicial conduct

Types of unfairly Prejudicial Conduct.

Unfair prejudice is a flexible concept, and incapable of exhaustive definition. The categories
of conduct which may amount to unfairly prejudicial conduct are not closed. However,
common examples of what may constitute unfairly prejudicial conduct are:
the diversion of business to another company in which the majority
shareholder holds an interest;
exclusion from management in circumstances where there is a (legitimate)
expectation of participation
the awarding by the majority shareholder to himself of excessive financial
benefits; and
Abuses of power and breaches of the Articles of Association. For example,
the passing of a special resolution to alter the Company's Articles may be unfairly
prejudicial conduct if such alterations would affect the Petitioner's legitimate
expectation that he would participate in the management of the Company. Also,
repeated failures to hold AGMs; delaying accounts, and depriving the members of
their right to know the state of the Company's affairs may all be unfairly prejudicial
to a member's interests. The conduct of the Petitioner is relevant, as the conduct
complained of may be found to be prejudicial but not "unfair". The Petitioner's
conduct may also affect the relief granted by the Court.
Test of Unfairness
the test as to what amounts to unfair prejudice is objective. It is not necessary for the petitioning
shareholder to show that anybody acted in bad faith or with the intention of causing prejudice.
The courts will regard the prejudice as unfair if a hypothetical reasonable bystander would
believe it to be unfair.
Who can make petition?
Registered shareholder of a company.
A person entitled to shares by operation of law.
Procedure on Petition.
Court proceedings for Unfair Prejudice are begun by way of a petition. The petition must specify
the grounds on which it is presented and the nature of the relief which is sought by the Petitioner
(i.e. the Shareholder who is bringing the claim). The Court will fix a hearing date on which the
Petitioner and any respondent must attend at Court or directions to be given as to the procedure
in respect of the petition.

Interlocutory relief may be available to protect the Company's and the Petitioner's position
pending the hearing of the petition.
Remedies Available

Section 996 of the Companies Act lists particular types of orders which may be made by the
Court if it decides that there has been unfair prejudice, although the Court retains a general
discretion under Section 996(1) to make any order it thinks fit. The powers listed in 996(2)
provide that the Court can:
regulate the conduct of the Company's affairs in the future;
require the Company to refrain from doing or continuing an act complained
of, or to do an act which the Petitioner has complained that it has omitted to do;
authorize civil proceedings to be brought in the name and on behalf of the
Company by such person/s and on such terms as the Court may direct;
require the Company not to make any, or any specified, alterations in its
articles without the leave of the court; and
Provide for the purchase of the shares of any members of the Company by
other members or by the Company itself and, in the case of the purchase by the
Company itself, the reduction of the Company's capital accordingly.
The power to authorize civil proceedings subject to terms directed by the Court can be a
particularly useful remedy, as it enables an action to be pursued by the Company, meaning that
the majority of the costs of that action would then be borne by the Company rather than by the
However, in practice, the most common remedy awarded to a successful Petitioner is to order
that their shares be purchased by those who caused the unfair prejudice.
The valuation of shares can however cause considerable problems, as there are many conflicting
methods of valuation. The Courts have in general held that the shares should be valued at such
date as is fair to the Petitioner, which is usually the date when the prejudice to the Petitioner
began. The Court can also order that the valuation should be on the basis that the unfairly
prejudicial conduct (which may have devalued the Company's shares) had not taken place.
In some circumstances it may be appropriate for the Court to order that the majority shareholder
sells his shares to the Petitioner, although this is considerably less common.