Category: News

Shareholder Protection from Unfairly Prejudicial Conduct: Case and Statute Citator 2023

Andrew Marsden

The 2023 edition of Andrew Marsden’s Shareholder Protection from Unfairly Prejudicial Conduct: Case and Statute Citator 2023 provides a useful and accessible source of reference to the law regarding the protection of shareholders/members from unfairly prejudicial conduct of a company’s or partnership’s affairs.

Part 30 of the Companies Act 2006 enables a shareholder in a company who is being treated in an ‘unfairly prejudicial’ way to seek relief from the court. Typically, these cases involve companies with relatively small numbers of shareholders. Those shareholders are usually also directors and may be the only directors of the company.

The shareholders/directors will generally have fallen out with each other. The unfairly prejudicial conduct often takes the form of an exclusion of one shareholder/director by another from the affairs of the company. On other occasions, it arises because of the misappropriation by one shareholder/director of property or funds belonging to the company or of a business opportunity that might have been enjoyed by the company. In other cases it might take the form of wrongful dealings with shares, improper dividends, salary or other payments or other improper conduct of the company’s affairs.

This legislation gives the court very wide powers to control the conduct of the affairs of the company and its shareholders/directors. Such proceedings regularly result in the court ordering that one shareholder/director should purchase the shares of another at a value determined by the court to be fair in the circumstances.

A move towards no fault commercial divorce?

Andrew Marsden

As Lord Hoffman emphasised in O’Neill v Phillips [1999] 1 WLR 1092, the jurisdiction under section 994 Companies Act 2006 to provide relief from unfairly prejudicial conduct of a company’s affairs does not provide the courts with a “no fault divorce” jurisdiction. Rather, the courts can only order a “buy out” of a shareholder’s interest under section 994 if the affairs of the company concerned have been conducted in a manner unfairly prejudicial to the interests of that shareholder.

A move towards no fault commercial divorce?

Likewise, although the courts in England and Wales have long held the power to order the winding up of a company in circumstances where it is “just and equitable” to do so (section 122 Insolvency Act 1986) they have no power to order a “buy out” of shares in such circumstances.

In contrast, in 2014 legislators in Singapore conferred on their courts an additional power to order a “buy out” in circumstances where there has been no “unfairly prejudicial” conduct but simply when it is considered “just and equitable” to do so: see section 254(2A) Singapore Companies Act (Cap.50, 2006 Rev. Edn). That jurisdiction and its parameters have been recently considered and confirmed by the Court of Appeal in Singapore in Ting Shaun Ping v Scanone Pte Ltd [2017] 1 SLR 95: see LQR 2017, 133(Jul), 372-377.

In light of Singapore’s example and that in other jurisdictions such as Canada and the Cayman Islands, is it not time for the recognition of a no fault jurisdiction for commercial divorce between participants in companies in England and Wales?

Commercial Agent Case and Statute Citator 2022

Andrew Marsden

The 2022 edition of Andrew Marsden’s Commercial Agent: Case and Statute Citator provides a useful and accessible source of reference to the law regarding Commercial Agents and the Commercial Agents Regulations 1993 (SI 1993/3053)

The terms of the Commercial Agents (Council Directive) Regulations 1993 (SI 1993/3053) (as amended) (‘the Regulations’) implement Council Directive 86/653 [1986] OJ L382/17 (‘the Directive’).

The Regulations came into force on 1 January 1994 and contain important provisions affecting the relations between commercial agents and their principals. In broad terms, a ‘commercial agent’ comprises a self-employed intermediary who negotiates or concludes sales or purchases of “goods” on behalf of his principal. The Regulations provide an entitlement to an ‘indemnity’ or ‘compensation’ on termination effected by the principal and set out certain duties owed between commercial agents and their principals. They also contain provisions relating to the basis of remuneration of commercial agents, the termination of commercial agencies and the validity of restraint of trade clauses.

Court recognises flexibility of jurisdiction under section 994 Companies Act 2006

Andrew Marsden

In Agro Foreign Trade and Agency [2017] EUECJ C-507/15 the European Court of Justice has delivered its judgment to the effect that agents operating outside EU member states are not afforded the protections given by the EU Council Directive 86/653/EEC even if their principal is based within a member state and the commercial agency agreement provides for the application of the law of a member state.

The ECJ considered that the purpose of the Directive was not to provide protection to agents based outside the EU who carried on their agency activities outside the EU.

On the other hand, it was recognised that the domestic implementation of the Directive might go beyond the requirements of the Directive in affording protection for agents in such circumstances.

Consequently, when advising a commercial agent operating outside of the EU, it is still important to consider whether the agency contract itself or the law of the country in which the agent operates or any other applicable law affords the agent protection akin to that provided by the Directive (where the agent operates in the EU) and the Commercial Agent (Council Directive) Regulations 1993 (where the agent’s activities take place in Great Britain)

Meaning of “goods” within the Commercial Agent Regulations

Andrew Marsden

Where there has been a breakdown of relations between those in business together it is often the case that there will have been some degree of misconduct on the part of more than one or even all of those involved.

In Interactive Technology Corp Ltd v Ferster [2016] EWHC 2896 the Companies Court grappled with issues of “relative misconduct” in the context of a petition for relief from unfairly prejudicial conduct brought under section 994 Companies Act 2006. The misconduct was “relative” both in the sense that the allegations of misconduct were made as between three brothers but also, more interestingly, in that the court made an assessment of the gravity of the misconduct on the part of one as compared to that of the other brothers.

The court declined to grant relief to the one brother despite finding that he had been the victim of unfairly prejudicial conduct on the basis that he had himself been guilty of misconduct far outweighing that of his brothers.

In this case the fact that the misconduct on the part of one brother considerably outweighed that of his brothers was clear. In other cases it will be considerably more difficult to assess the relative degree of misconduct of those in business together and, consequently, who, if anyone, should be entitled to relief or to determine what form of any relief might be appropriate. Indeed, in some such cases the court may be tempted simply to deny relief under section 994 to all the participants and leave them with little to fall back on if they cannot resolve matters between themselves other than seeking the winding up of their company or partnership.