In the case of Maidment v Attwood and others the High Court had previously determined that there was a requirement for the shareholder to have checked the company’s filed accounts to support his claim that a director had carried out unfairly prejudicial conduct by drawing excessive remuneration from the company. The Court of Appeal, Civil Division, held that the this decision had imposed an unfair requirement upon the minority shareholder.
This Judgment serves as a reminder that the unfair prejudice remedy (under the Companies Act 2006, s 994) is a flexible and adaptable remedy for shareholders. This can sometimes be overlooked if an overly technical or legalistic approach is taken in these kind of cases. The Judgment emphasises the need of the court to look at the factual matrix of the case as a whole, in order to determine whether a shareholder has been unfairly prejudiced overall, rather than examining matters on a point by point basis.
This Judgment also specifically brings the duties of directors into the context of unfair prejudice, and reminds us that company directors cannot act with impunity. If they have breached their fiduciary duties and failed to protect the interests of the company, s 994 can ensure shareholders are entitled to a remedy for losses caused.
A side issue in the proceedings, but a very interesting one, was also raised in relation to the insolvency of the company in question. The Court held that the insolvency of a company should not be a barrier to shareholders bringing a claim against the director. Arden LJ held that the court should be flexible in its approach and do all it could to achieve a fair and just result, and to dismiss the idea that because a company is insolvent then theoretically it no longer holds any remaining financial value for shareholders.
It was held that the court should first decide whether there has been unfair prejudice and if so what notional value should be put back into the company, i.e. to ‘add back’ the value of the shares for the purposes of the action. Therefore the wrongdoer can be ordered to buy out shares in an insolvent company for an amount which reflects the value which should have been there but for the wrongdoing.
Published on 13/08/2012