Remedies for a Successful Unfair Prejudice Claim

The Court’s Wide Discretion to Grant Relief

When a court upholds an unfair prejudice petition under Section 994 of the Companies Act 2006, it has very wide powers under Section 996 to grant whatever relief it considers appropriate to address the unfair prejudice identified. The court is not restricted to a fixed list of remedies and is not limited to the remedies specifically requested by the petitioner. It may impose a solution it considers fair in all the circumstances, including remedies that go beyond what either party proposed.

This flexibility is a defining feature of the unfair prejudice jurisdiction. Unlike a straightforward contractual claim where the remedy is typically damages calculated to put the claimant in the position they would have been in had the contract been performed, the court in an unfair prejudice case is exercising a broad equitable jurisdiction designed to address the specific unfairness identified and prevent its continuation.

In practice, however, the most common outcome by far is a buyout order: the court orders one party, usually the majority, to purchase the minority’s shares at a fair value. Understanding the range of remedies available, and when each is appropriate, is important both for petitioners who are deciding what to ask for and for respondents who are assessing what a realistic outcome might look like.

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.

Buyout Orders: The Most Common Remedy

The most frequently granted remedy in unfair prejudice cases is an order requiring one shareholder to buy out another at a fair value. In most cases this means the majority purchasing the minority’s shares, though the court has the power to order the minority to sell their shares to the majority where that is the appropriate solution, or in some circumstances to order a third-party purchase.

The buyout order is popular because it provides a clean and definitive resolution to disputes where the relationship between shareholders has broken down irreparably. Rather than attempting to repair a relationship that no longer functions, the court enables the parties to go their separate ways while ensuring that the minority is fairly compensated for the investment they are surrendering.

The critical issue in most buyout cases is the valuation: what price fairly represents the minority’s shares in the circumstances? This question is often more fiercely contested than the underlying unfair prejudice claim itself, and it involves a range of subsidiary questions about valuation methodology, the appropriate valuation date, whether any discounts should be applied, and how the effects of the unfairly prejudicial conduct should be reflected in the valuation.

Fair value and minority discounts

In the ordinary case, the court will order a buyout at a fair value representing the minority’s proportionate share of the company’s total value, without applying a discount for the fact that the shares represent a minority stake. Minority discounts, which reduce the price to reflect the fact that a minority stake carries less control and less liquidity than a majority stake, are generally not applied in unfair prejudice cases where the minority is being bought out against their will as a result of the majority’s misconduct.

However, the court retains discretion on this point and will consider the specific circumstances of each case. Where the minority’s shares would genuinely trade at a discount in the open market, and where the minority’s position is not the result of unfair conduct by the majority, some form of discount may be appropriate.

The valuation date

The choice of valuation date can significantly affect the outcome where the company’s value has changed during the period of dispute. Where the majority’s conduct has artificially depressed the value of the company, fixing the valuation date at the time of the conduct rather than at the date of the order may be necessary to ensure that the minority is not penalised by the effects of the very prejudice they are complaining of.

Courts are alert to situations where the majority creates conditions that reduce the apparent value of the minority’s shares and then relies on those conditions to justify a lower buyout price. Where this is found, the court may fix an earlier valuation date, adjust the valuation methodology, or otherwise ensure that the remedy addresses the prejudice rather than crystallising it.

Regulation of the Company’s Future Conduct

Where the relationship between shareholders is not irreparably broken and the parties will continue as co-owners of the company, the court can regulate how the company is to be managed in the future. This may include requirements about how board meetings are to be conducted, how decisions are to be taken, what information is to be provided to shareholders, and how profits are to be distributed.

Regulation of future conduct is a forward-looking remedy. It is most appropriate where the unfair prejudice arose from a specific aspect of how the company was being run, and where changing that aspect would address the prejudice while allowing the business to continue. It is less common in cases where the personal relationship between the shareholders has broken down so completely that any co-ownership arrangement is unworkable.

Orders Prohibiting or Requiring Specific Acts

The court can require the company to do certain things or prohibit it from doing them where that is necessary to address the identified unfairness. For example, the court may order the company not to proceed with proposed changes to its share structure, voting rights or board composition that would unfairly disadvantage minority shareholders. It may also require the company to take positive action, such as providing information, convening meetings or implementing agreed governance arrangements that have been ignored.

These targeted orders allow the court to address specific instances of unfairness directly rather than relying on the broader remedy of a buyout or regulation of conduct generally. They are particularly useful where the unfair prejudice consists of a threatened or proposed act that can be stopped before the damage is done.

Restriction or Alteration of the Articles of Association

Where the unfair prejudice arises from, or is enabled by, specific provisions in the company’s articles of association, the court has the power to restrict or alter those provisions. This remedy addresses the structural basis of the unfairness rather than simply its immediate manifestations. Where the articles allow the majority to entrench their position or repeatedly disadvantage minority shareholders, the court can intervene in the constitutional framework itself.

Authorisation of Derivative Claims

In some unfair prejudice cases, the court may authorise a shareholder to bring a claim in the name of the company to recover losses suffered by the company as a result of wrongdoing by those in control. This is known as a derivative claim. Rather than compensating the shareholder directly, the aim is to restore value to the company by requiring those responsible for the wrongdoing to account for what they have taken or destroyed.

Derivative claims are generally treated as a secondary remedy in unfair prejudice cases. The court will first consider whether the problem can be addressed more directly through a buyout or regulation of future conduct. For detailed guidance on derivative claims see the chapter on derivative claims under Section 260 of the Companies Act 2006.

Restitution of Rights

Where unfair prejudice has been caused by the removal or dilution of a shareholder’s rights, for example through the improper removal of voting rights, the reversal of an unauthorised share issue, or the reinstatement of board representation, the court can order the restoration of those rights. Restitution is most appropriate where the shareholder wishes to remain involved in the business and where restoring their position is both realistic and consistent with the original basis of the shareholders’ relationship.

Compensation for Losses

In some cases the court may award financial compensation to address losses suffered as a result of the unfairly prejudicial conduct where those losses cannot be adequately addressed by other remedies such as a buyout. The guiding principle is restoration: putting the shareholder, so far as money can do so, back into the position they would have been in had the unfair prejudice not occurred. Compensation is applied with caution and only where there is a proper evidential foundation for the losses claimed.

Published Resources

My book Shareholder Disputes: A Practical Guide for Business Owners, Directors and Family Businesses examines each of the available remedies in detail, including a worked analysis of the advantages and disadvantages of each remedy for each of the family members in the Whitcombe Family Business case study. This practical analysis is designed to help business owners understand not just what remedies are theoretically available but which are likely to serve their specific interests.

See all books.

Frequently Asked Questions

Can the court order a buyout at a price above market value?

The court orders a buyout at a fair value, which in most cases means the minority’s proportionate share of the company’s total value without applying a minority discount. This may be above what the shares would trade for in the open market, particularly in private companies where minority stakes carry an inherent illiquidity discount.

Can the minority shareholder be forced to sell their shares?

Yes. The court has the power to order the minority to sell their shares to the majority as well as the other way around. This may be appropriate where the conduct of the minority has contributed to the breakdown of the relationship or where the overall circumstances make a compulsory sale the most appropriate outcome.

Can the court order a buyout where the company cannot afford to pay?

This is a practical constraint that courts take into account. Where the company itself is the buyer, its financial capacity to fund the purchase matters. Where the majority shareholders are the buyers, their personal financial resources are relevant. In some cases the valuation may be structured with staged payments or the court may consider other remedies if a buyout is not financially achievable.

What happens if the petitioner has behaved badly themselves?

The unfair prejudice jurisdiction is an equitable one. The court considers the conduct of all parties, including the petitioner, when deciding what relief to grant. A petitioner who has themselves acted improperly in connection with the matters they complain of may find that the available remedies are limited or that the court declines to grant relief on the terms sought.

Is the remedy automatic once unfair prejudice is established?

No. The court retains a wide discretion in deciding what remedy, if any, to grant once unfair prejudice is established. The nature, extent and practical impact of the prejudice, the conduct of all parties, the financial position of the company, and the overall circumstances of the dispute all influence what remedy the court considers appropriate.

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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.

What Are the Remedies for a Successful Unfair Prejudice Claim?