How to Bring an Unfair Prejudice Petition Under Section 994 of the Companies Act 2006

What Is an Unfair Prejudice Petition?

An unfair prejudice petition is a legal claim brought by a shareholder asking the court to intervene where the company’s affairs are being conducted in a way that treats them unfairly and damages their position. It is the principal remedy available to shareholders in private companies who are being oppressed, excluded or treated unfairly by those in control.

The statutory basis for the claim is Section 994(1) of the Companies Act 2006, which provides that a shareholder may petition the court where the company’s affairs are being, or have been, conducted in a manner that is unfairly prejudicial to the interests of some or all of its members, including the petitioner, or where any actual or proposed act or omission of the company is or would be so prejudicial.

This page is part of the Shareholder Disputes Knowledge Guide. If you need legal advice on a shareholder dispute see my direct access barrister page.

Why an Unfair Prejudice Petition Rather Than Winding Up?

A minority shareholder who is being oppressed by a majority can in principle ask the court to wind up the company on just and equitable grounds under Section 122(1)(g) of the Insolvency Act 1986. However, winding up the company is often not in the interests of any shareholder, particularly where the business remains commercially viable and profitable. Closing a functioning business down to resolve a dispute between its owners is a blunt and frequently destructive solution.

An unfair prejudice petition offers a more flexible alternative. Rather than ending the company’s existence, it asks the court to intervene in how the company is being run, or to provide a remedy such as a buyout that allows the aggrieved shareholder to exit at a fair value while the business continues. This is why unfair prejudice petitions have become the primary tool for shareholder disputes in private companies, particularly small and medium-sized enterprises where the shareholders are closely involved in the management of the business.

For detailed guidance on when just and equitable winding up may still be the right route see the chapter on just and equitable winding up.

The Two Grounds for an Unfair Prejudice Petition

Section 994 provides two distinct grounds on which a petition may be brought. The first is conduct of the company’s affairs in a manner that is unfairly prejudicial to shareholders. The second is a specific act or omission of the company that is, or would be, unfairly prejudicial. A petition may succeed on either ground, and in practice both grounds are often present simultaneously.

An important point is that the section applies to proposed conduct as well as conduct that has already occurred. Where a shareholder has credible evidence that the majority intends to take steps that would be unfairly prejudicial, they do not have to wait until the damage has been done before petitioning. However, mere fears or unfounded speculation are not sufficient. There must be a real and credible basis for the concern.

Who Can Bring an Unfair Prejudice Petition?

In most cases an unfair prejudice petition can be brought by any member of the company, which in practice means any registered shareholder. The right to bring a petition normally belongs to the legal owner of the shares, meaning the person whose name appears on the company’s register of members.

A person who is only the beneficial owner of shares held on trust cannot usually bring a petition directly in their own name. They may, however, be able to require the trustee to bring the petition on their behalf. Where shares are held through complex structures, careful thought about standing is required before proceedings are commenced.

Although the remedy is most commonly used by minority shareholders, it is also available where a shareholder with a larger or equal shareholding is prejudiced by a minority that exercises effective control of the company through governance structures, board representation or practical influence over decision-making.

The Two Essential Elements: Unfairness and Prejudice

For a petition to succeed, two distinct elements must both be established. The conduct complained of must be both unfair and prejudicial to the shareholder’s interests as a member. Either element alone is not sufficient.

Conduct may cause real harm to a shareholder and yet not be unfair in the legal sense, for example where the majority exercises its legal rights in a way that disadvantages the minority but is not contrary to any agreement, expectation or legal duty. Equally, conduct may be technically improper or unfair and yet cause no meaningful prejudice to the shareholder’s interests as a member. Both elements must be established, and the prejudice must be substantial in relation to the remedy sought. The court is unlikely to intervene where the issue complained of is trivial.

For detailed guidance on what constitutes prejudice see the chapter on what amounts to prejudice. For detailed guidance on what constitutes unfairness see the chapter on what amounts to unfair.

The Objective Test for Unfair Prejudice

The test for whether conduct is unfairly prejudicial is an objective one. The court asks whether a reasonable person would consider the conduct to have unfairly prejudiced the shareholder’s interests. It is not a subjective test based on how the petitioner feels about the conduct, and it does not require proof that the majority shareholders knew they were acting unfairly or deliberately intended to cause harm.

This objective approach has important practical consequences. A majority that genuinely believed it was acting properly may still be found to have acted unfairly if a reasonable person would view the conduct differently. At the same time, a petitioner who feels strongly aggrieved does not automatically have a claim simply because the conduct feels deeply unfair to them personally.

One important qualification is that if the petitioner has agreed to or acquiesced in the conduct complained of, the claim is unlikely to succeed. A shareholder who participated in the decisions they now challenge, or who stood by while they were taken without objection, may find that their acquiescence undermines the petition.

Legitimate Expectations of Shareholders

In determining whether conduct is unfairly prejudicial, courts frequently consider the legitimate expectations of shareholders. These are the reasonable expectations about how the company will be managed that shareholders have acquired, whether from the formal constitutional documents of the company or from informal agreements and understandings between shareholders.

At a minimum, shareholders have a legitimate expectation that the company will be managed lawfully: in accordance with its articles of association and in compliance with the duties that the Companies Act 2006 imposes on directors. Beyond this, in companies that operate as quasi-partnerships, shareholders may have legitimate expectations arising from informal agreements and understandings about management participation, profit sharing and how decisions will be made, even where those arrangements were never reduced to a formal written document.

The larger and more formally governed the company, the harder it is to establish legitimate expectations beyond what the formal documents provide. In smaller, closely-held companies and family businesses operating on the basis of mutual trust and personal relationships, informal expectations carry significantly more weight. For detailed guidance on quasi-partnerships and why they matter see the chapter on what is a quasi-partnership.

The Role of Mediation

The Companies Court actively encourages shareholders to consider alternative dispute resolution, particularly mediation, before or during petition proceedings. A refusal to consider mediation without good reason can lead to adverse costs consequences even where a party ultimately succeeds on the merits. This is a serious practical consideration. Shareholders who are contemplating or defending a petition should have a clear answer to the question of whether mediation has been properly considered and, if it has been declined, why.

Mediation of shareholder disputes has a strong track record of producing settlements that both parties can live with, often more quickly and at significantly lower cost than contested litigation. For detailed guidance on the role of mediation see the chapter on how important is mediation in shareholder disputes.

Published Resources

My book Shareholder Disputes: A Practical Guide for Business Owners, Directors and Family Businesses covers all aspects of unfair prejudice petitions in detail, using the Whitcombe Family Business case study that runs throughout the book to illustrate how the legal principles apply in a realistic dispute involving multiple shareholders with conflicting interests. The book is designed for business owners, directors and shareholders who want to understand the legal landscape and make informed decisions about their options.

See all books.

Frequently Asked Questions

Can I bring an unfair prejudice petition as a minority shareholder?

Yes. Section 994 of the Companies Act 2006 is most commonly used by minority shareholders who are being oppressed or excluded by majority shareholders. However, it is also available to shareholders with larger or equal stakes where they are prejudiced by conduct of those in effective control.

Do I have to prove that the majority shareholders intended to act unfairly?

No. The test is objective: whether a reasonable person would consider the conduct to be unfairly prejudicial. It is not necessary to establish that the majority knew they were acting unfairly or deliberately set out to harm the petitioner. However, deliberate misconduct will usually make it easier to establish both unfairness and prejudice.

Can I bring a petition based on conduct that has not yet happened?

Yes. Section 994 applies to proposed acts and omissions as well as conduct that has already occurred. However, the petition cannot be based on speculation or unfounded fears. There must be a credible and real basis for believing that the proposed conduct would be unfairly prejudicial.

What is the most common remedy in an unfair prejudice case?

The most common remedy is a buyout order, requiring the majority to purchase the minority’s shares at a fair value determined by the court or by an independent expert. For a full treatment of the range of remedies available see the chapter on remedies for a successful unfair prejudice claim.

Do I need a solicitor to bring an unfair prejudice petition?

You can instruct me directly as a direct access barrister without going through a solicitor first. This can reduce costs and provide faster access to specialist advice. For more detail see my direct access barrister page.

Get in Touch

If you are a shareholder facing unfair treatment, exclusion from management or a dispute with co-shareholders or directors, I would be glad to discuss your situation and options.

Call 020 4538 0246, use the contact form below, or book a call directly.

Important disclaimer: This page is provided for general information and educational purposes only and does not constitute legal advice. The content may not be legally accurate for your specific situation. You must not rely on anything on this page in respect of your legal rights. The law in this area relates to companies registered in England and Wales only. Always seek independent legal advice from a qualified specialist before taking or refraining from taking any action. The author accepts no responsibility for any decisions made or outcomes arising from use of this material. If you would like specific advice on your situation, contact me here.

How Can I Claim an Unfair Prejudice Petition Under Section 994 Companies Act 2006?