Unfair prejudice in United Kingdom Company Law
DOI:
https://doi.org/10.24203/ajhss.v9i1.6512Keywords:
Unfair Prejudice', Minority Protection, Corporate Governance StructureAbstract
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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