Minority Shareholders and Unfair Prejudice – High Court Ruling

Hope springs eternal, but business aspirations sadly are not always crowned by success. That was certainly so in one case in which minority shareholders in an ill-fated advertising company sought more than £450,000 in compensation on the basis that their interests had been unfairly prejudiced.

The three minority shareholders together owned a 13 per cent stake in the company that, it was hoped, would generate handsome profits by installing cigarette bins for public use on which advertising could be displayed. One of the directors of the company was also chairman of a large transport business that initially placed its adverts on the bins. He owned 16 per cent of the company’s shares.

The company’s fortunes declined considerably after it was prosecuted by a local authority and fined in respect of unauthorised advertising. The transport business steadily reduced the sums that it paid for advertising to zero and, after it required the removal of its adverts from the bins, the company was effectively dead.

In those circumstances, the minority shareholders launched proceedings under the Companies Act 2006 alleging that their interests had been unfairly prejudiced. Their claim was successful against the director after a judge found that he had preferred the interests of the transport business to those of the company.

Following a further hearing, however, the Court found that the minority shareholdings were worthless, or practically so. The company’s notional profits would have been wiped out by its loan repayment liabilities and other costs. Subject to any further argument to the contrary, the minority shareholders were entitled only to an order requiring the director to acquire their shares for a nil consideration.