Excluded minority in a quasi-partnership company: unfair prejudice petition (CA 2006 ss.994, 996)
In 2018 three friends formed Marlowe Print Ltd, a private company limited by shares, on the shared understanding that each would be a director and take part in running the business. Each holds one third of the shares. After a falling-out, the other two shareholders validly remove Abena as a director by ordinary resolution after giving special notice, and exclude her from all involvement in management. The company has since paid no dividends, while paying the two remaining directors substantially increased salaries. Abena would like to leave the company and receive a fair value for her shares.
Which course of action is most appropriate for Abena?
Choose one answer to see the reasoning.
Worked answer
Correct answer D: A petition on the ground that the company's affairs are being conducted in a manner unfairly prejudicial to her interests as a member, seeking a buy-out of her shares.
THE RULE TO REMEMBER
A member may petition under s.994 CA 2006 where the company's affairs are conducted in a manner unfairly prejudicial to members' interests; the court may order a purchase of the petitioner's shares (s.996(2)(e)).
Excluded minority in a quasi-partnership company: unfair prejudice petition (CA 2006 ss.994, 996)
Section 994(1) CA 2006 allows a member to petition on the ground that the company's affairs are being or have been conducted in a manner unfairly prejudicial to the interests of members generally or of some part of its members, including the petitioner. Marlowe Print Ltd was formed on an understanding that each founder would take part in management. Excluding Abena from management, while giving the others higher salaries and paying no dividends, is the classic basis for such a petition. If the petition is well founded, the court may make such order as it thinks fit (s.996(1)). This expressly includes an order for the purchase of a member's shares by other members or by the company (s.996(2)(e)). That gives Abena the exit at a fair value that she wants. Her removal as a director was lawful in itself, but the unfairness lies in how the company's affairs are being run against her interests as a member.
Why A is wrong: A derivative claim seeks relief for the company in respect of wrongs to the company, whereas Abena's complaint is prejudice to her as a member and she wants to exit.
Why B is wrong: The members validly used their statutory power under s.168 to remove her, so there is no breach of the articles to sue on.
Why C is wrong: With one third of the votes Abena cannot carry an ordinary resolution against the other two, and this would not give her an exit.
Why E is wrong: There is no general statutory right for a minority shareholder to require a company to buy back their shares; a buy-out comes from a court order under s.996.
A little more practice done.
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