Section 994 of the Companies Act 2006 is intended to protect the interests of minority shareholders against disadvantageous treatment and unfairly prejudicial conduct by the majority in a company. ¹ It is essential that minority shareholders have less control over the decisions in the company and be vulnerable to unfair actions and conduct. ² Additionally, Section 994(1) of the Companies Act 2006 empowers a member of a company to seek relief from the court by a petition. ³ Furthermore, the petition can be based on an actual or proposed act or omission by the company that would be prejudicial to the interests of the members.

The court's intervention under s 994(1) is not typically aimed at facilitating the majority's acquisition of the minority's shares under a court order, even if evidence suggests that the minority is acting in an unfairly prejudicial manner. ⁴ The court does not usually use this provision as a means for the majority to forcibly acquire the shares of the minority. Instead, the focus is on addressing and rectifying the unfairly prejudicial conduct, allowing the majority to take corrective action, such as removing directors, and resolving the issue within the company's internal structure.

With regard to Re Legal Costs Negotiators Ltd [1998] CLY 695, two partners transformed their business into a limited company, with one partner maintaining 75% of the shares and the other holding 25%. ⁵ The majority shareholder alleged that the minority was not fulfilling his duties adequately, leading to his resignation from the board and dismissal from employment by the company. Majority shareholder then made a claim under Section 994 to obtain an order requiring the minority shareholder to sell his shares to the majority shareholder.

However, the High Court rejected this claim regarding this an inappropriate use of the provision. The court stated that the majority shareholder had already taken action by removing the ex-partner from the board and employment, thereby addressing potential problems to the company arising from the alleged conduct of the minority.⁶ The decision highlights that Section 994 doesn’t exist to facilitate the majority's acquisition of the minority's shares under court orders when the majority has already taken corrective action. ⁶

References

1. Companies Act 2006, s 994
2. Charles Wild, Stuart Weinstein, ‘Smith & Keenan’s Company Law’ (Pearson 2019, 18th edn) p.491
3. Companies Act 2006, s 994(1)
4. Charles Wild, Stuart Weinstein, ‘Smith & Keenan’s Company Law’ (Pearson 2019, 18th edn) p.491
5. Re Legal Costs Negotiators Ltd [1998] CLY 695
6. Re Legal Costs Negotiators Ltd [1998] CLY 695
7. Re Legal Costs Negotiators Ltd [1998] CLY 695