Introduction
Disputes between directors and shareholders disrupt the running of otherwise successful businesses. New businesses and start-ups naturally involve the directors and shareholders shared enthusiasm for the project and willingness to take a risk. It is later, when disagreements occur about the direction that a company should follow, that problems arise.
A powerful remedy for shareholders is a section 994 petition. This allows a minority shareholder to petition the court if the affairs of the company are being run in a way which is ‘unfairly prejudicial’ to their interests. The court has a wide range of remedies, but the normal order is for a sale or purchase of shares at a fixed price.
Five recent cases have provided important lessons and guidance for shareholders and directors about what to do when a company is being run against your interests. In this series, Alex Pritchard-Jones and Harrison Burroughs explain the key points of each case.
Check the Register: Maggie Otto and others Vs Inner Mongolia Happy Lamb catering and others [2024] EWHC 497 (Case)
This recent case demonstrates the importance of checking whether the petitioner has the legal right to bring a s.994 petition before the court prior to making the claim.
In this case, the Petitioners and the Respondents had reached day one of the trial before the Petitioners’ standing to bring the claim was raised. The Petitioners had been in possession of the share register for months, but their legal advisers had not checked whether the Petitioners were on the share register.
The Respondents sought and obtained permission to withdraw admissions that the Petitioners had standing. The Petitioners sought permission to amend their claim to include rectification of the share register, by section 125 Companies Act.
Mr Justice Zacaroli, as he then was, refused permission for the Petition to be amended. It was far too late and would have involved the joinder of another company, which would first have needed to be restored to the Register. Additionally, the proposed amendments were insufficiently clear and contradicted by the written evidence of two of the Petitioners.
The judgment does not make clear what happened next, but it can be inferred that the ruling was prejudicial to the Petitioners’ claim. The judge noted that despite the share register having been in the Petitioners’ possession all along and disclosed to the Respondents in June 2023, neither the Petitioners nor the Respondents focussed on it at all, prior to last week.
The lesson here is clear: make sure you have the standing to bring the unfair prejudice petition before you issue it; or, at the very least, apply to rectify the Register within your Petition. Not to do so could lead to very expensive litigation disappearing on the first day of trial.