Remedies for Unfairly Prejudicial Conduct under Section 996 of the Companies Act 2006

Section 996 of the Companies Act 2006 outlines specific and general relief available for unfairly prejudicial conduct, primarily directed at protecting the rights of minority shareholders.1 These remedies are intended to rectify the harm caused by prejudicial actions and maintain the integrity of corporate governance. Specific relief under section 996 encompasses several important aspects:

Regulation of Company's Affairs: Under section 996(2)(a), the court is empowered to issue orders that restrict the company's future operations.2 This remedy ensures that the company's affairs are managed in an equitable manner, preventing the recurrence of prejudicial conduct.

Restraint of Prejudicial Acts: Section 996(2)(b) enables the court to intervene and prevent the continuation of prejudicial acts, protecting minority shareholders from further harm.3

Purchase of Minority Shares: Section 996(2)(e) allows the court to order the purchase of minority shares at a fair price, either by fellow members or the company itself.4 This remedy has been effectively replacing winding-up under the equitable rule, while involving a reduction of capital, providing guidance on valuing the shares fairly. Valuation directions may involve avoiding a minority interest valuation to account for the lack of power held by minority shareholders. The valuation process, typically conducted by the company's auditors, ensures an accurate assessment in the absence of stock market share prices.

With regard to Re Annacott Holdings Ltd [2013] EWCA Civ 119, it was determined that interpretation of valuation directions, determining whether a going-concern or liquidation/break-up basis should be used.5 Additionally, section 996(1) allows for general relief, granting the court broad discretion to give orders identifying the issues raised in the unfair prejudice claim, and empowering the court to provide relief tailored to the specific circumstances of the case.6 With regard to Re a Company (No 005287 of 1985) [1986] 1 WLR 281, a controlling shareholder who had already sold their shares was ordered to account for profits taken in management fees.7 This demonstrates that a petition can be presented against individuals who have ceased to be members. When equal shareholders cannot agree on the buyout terms, the court intervenes to ensure equitable resolution.

References

  1. Companies Act 2006, s 996
  2. Companies Act 2006, s 996(2)(a)
  3. Companies Act 2006, s 996(2)(b)
  4. Companies Act 2006, s 996(2)(e)
  5. Re Annacott Holdings Ltd [2013] EWCA Civ 119
  6. Companies Act 2006, s 996(1)
  7. Re a Company (No 005287 of 1985) [1986] 1 WLR 281