Minority Shareholder Rights

In the case of Re Cherry Hill Skip Hire LtdBailey v Cherry Hill Skip Hire Ltd and others the Court of Appeal, Civil Division considered whether the lower court was wrong to dismiss in its entirety a petition seeking relief under s 994 to 996 of the Companies Act 2006 (an unfair prejudice claim), on grounds of long delay or acquiescence by the petitioner in the conduct of which he complained

The appellant was the minority shareholder in a company of which his mother, the fourth respondent (M), was the majority shareholder. The appellant and M were the company's directors. The appellant and M had fallen out and, in 1999, the appellant was replaced as a director of the company. Between 2001 and 2003, the appellant had requested copies of the company's accounts and had indicated that unfair prejudice proceedings would be issued. However, it was not until 2020 that the appellant issued a petition under s 994 Companies Act 2006 in which he alleged a continuous course of conduct by M and the wider family that had excluded him from participation if the running of the company and had denied him his rights as a shareholder.

Specific allegations included that the appellant had unlawfully been substituted as a shareholder and there had been a fraudulent dissolution of the company without notice to or participation of the appellant. The petition was struck out on the basis that there had been delay and acquiescence. The appellant appealed.

The Court of Appeal held the following: Where delay was concerned, there was a distinction to be drawn between:

• a shareholder who knew he had been excluded from active involvement in the company's affairs and failed to complain about that for many years, and
• a passive shareholder who knew he was not getting the company's accounts or an invitation to the annual general meeting and was not receiving dividends and did nothing about any of those matters but then discovered years later that money or corporate opportunities had been diverted from the company for the benefit of its directors, and, moreover, that his shareholding was apparently expropriated some years earlier.

The distinction lay in the fact that, in the absence of evidence to the contrary, a shareholder was entitled to assume that the company was being managed properly by its directors in accordance with their fiduciary and statutory duties, and that its constitution had been followed.

In the instant case, whilst the appellant still had a lot of work ahead of him to prove his case, the case should indeed be heard. The appeal was therefore allowed.

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Published on 13/05/2022