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Unfair Prejudice Petition: removal as a director both unfair and prejudicial

Tue 13 Aug 2013

In a judgment handed down in the Chancery Division of the High Court that court has ruled that the dismissal of a director of a company constituted exclusion from the company that was unfair and prejudicial to his interests as a shareholder under s. 994 of the Companies Act 2006.

Under sections 994 and 996 of the Companies Act 2006, where a company’s affairs are being or have been conducted in a manner which is unfairly prejudicial to the interests of members generally or some part of its members, or that an actual or proposed act or omission of the company would be so prejudicial, a member of the company affected may apply to the court by petition for an order giving relief in respect of the matters complained of.  

In Re I Fit Global Ltd, also known as Blunt v Jackson [2013] EWHC 2090 (Ch), Mr Justice Roth was asked to determine two preliminary issues in relation to a company incorporated in April 2010, namely whether the petitioner was a shareholder; and whether his removal as a director constituted unfair prejudice under s. 994.

Mr Justice Roth found that the petitioner and respondent had agreed on the basis of a partnership to establish the company and that each would hold an equal shareholding. The petitioner claimed and the court accepted that upon incorporation of the company he had worked for a very modest salary on the basis that he would hold an equal shareholding. The payment of dividends to the petitioner was evidence that he was a shareholder, notwithstanding that his details had never been entered into the shareholder register (which did not exist) and there had never been a declaration of dividends. The petitioner’s agreement to become a shareholder meant that, in accordance with section 112 of the Companies Act 2006, he had so become a member.

The petitioner was dismissed as a director 19 months after the company was incorporated and from this point was excluded from the company. Following his removal, the respondent sought to make another party (who was the second respondent in the action) a shareholder and dilute the petitioner’s shareholding. The petitioner’s shares were subsequently transferred to the respondent. Mr Justice Roth found that these facts were examples of the petitioner’s exclusion from the company. The court found, given the basis on which the company was established, that exclusion was clearly unfair and prejudicial to the petitioner’s interests as a shareholder.

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