Unfair prejudice claims associated with the management of companies are usually brought by a minority shareholder, with the usual order sought being a ‘Buy-Out Order’ requiring the wrongdoer to purchase the unfairly prejudiced party’s shares. In Macom GmbH v Bozeat & Ors [2021] EWCH 1661 (Ch) this was turned on its head.
Macom GmbH, the Petitioner, was a German company with a majority shareholding and a director appointed to the board. The Respondent, Mr Bozeat, was a minority shareholder in the company and was also a director. Crucially, he had the casting vote in the event of any deadlock. Company decisions required a majority vote at a board meeting, and as such Mr Bozeat had the ability to control the management of the company.
When the relationship between the German corporation and Mr Bozeat broke down he started to deprive the corporate member of information and shut down communication with it. As a result of Mr Bozeat’s behaviour the German corporation brought an unfair prejudice claim.
Court’s Decision
An unfair prejudice petition can be brought by a majority shareholder under s994 Companies Act 2006 (the “Act”). The Act states that a petition can be brought if the company’s affairs are being conducted in a way that is unfairly prejudicial to the interests of members generally or some part of its members.
On this occasion the court considered that Mr Bozeat’s behaviour had unfairly prejudiced the corporate member.
The majority shareholder had suffered no financial loss but had been deprived of right to participate in the affairs of the company, as such unfair prejudice was shown.
The German company requested that its shares be bought by the Respondents; in other words that the usual order be made. The court considered, however, that it would be “wholly disproportionate” on the facts to order an individual to buy the German company’s 60% shareholding and considered the following options:
the Petitioner buying-out the Respondent or;
an order in relation to governance.
The court concluded that the latter was the more proportionate option, requiring an increased frequency of board meetings and the members compliance with the company’s articles.
Wider implications
Though a Buy Out Order is the most usual order, the court has a wide range of discretionary orders that it can make and this case demonstrates the court’s approach when considering the appropriate order to make. The court will always opt for the most proportionate and appropriate order in the individual circumstances. The Petitioner, despite having the allegations of unfair prejudice found it is favour, did not get the result it expected - to free itself from its dealings with the Respondent. The case serves to highlight the risk associated with bringing an unfair prejudice claim to trial – the court may not exercise its discretion in the way envisaged.
It is also a reminder to ensure that all members are considered when running a company, as a claim for unfair prejudice can come from anyone, minority or majority. While it may be a rare occurrence, it may be the case that, when it comes to unfair prejudice claims, all shareholders are created equally.
