Introduction
Re A Company [1986] BCLC 376 represents a significant development in UK company law concerning minority shareholder rights. This case established clear criteria for when a minority shareholder can request court intervention under section 459 of the Companies Act 1985 (now section 994 of the Companies Act 2006). The ruling focused on identifying actions considered “unfairly harmful” to members’ interests. The court clarified that this concept extends beyond financial harm, covering breaches of informal understandings about company management. To succeed, a shareholder must demonstrate both harmful actions and their direct effect on their position as a minority member.
The Facts of Re A Company
The dispute arose in a private company with two equal shareholders. Disagreements over management led to deadlock. One shareholder claimed the other (who acted as managing director) excluded them from decision-making, mishandled funds, and failed to distribute dividends. These actions were argued to constitute unfairly harmful conduct.
Proving Unfairly Harmful Behavior
The court explained how to assess “unfairly harmful conduct.” Mr. Justice Hoffman emphasized an objective evaluation. He distinguished ordinary business disagreements from actions violating written or unwritten rules of company operation. In this case, excluding the shareholder from management and other issues were deemed unfairly harmful. This confirmed harm could involve non-financial consequences, such as disregarding reasonable expectations in small, partnership-like companies.
Informal Agreements Among Shareholders
Re A Company acknowledged the role of informal understandings between shareholders, particularly in small companies functioning similarly to partnerships. Such arrangements often remain undocumented. The court ruled that violating these could qualify as unfairly harmful conduct, allowing courts to consider real-world relationships in closely-held companies.
Court Orders Under Section 459
Courts have broad authority under section 459 (now section 994) to impose remedies for unfairly harmful conduct. The typical resolution orders the respondent to buy the claimant’s shares at a fair price determined by the court. Other options include rules for future management, requiring specific actions, or permitting legal claims in the company’s name. In Re A Company, the court directed the respondent to purchase the claimant’s shares, enabling them to leave the deadlocked company.
The Effect of Re A Company on Minority Shareholder Rights
This case strengthened protections for minority shareholders by broadening harmful conduct to include breaches of informal agreements. It provided minority members a means to challenge unfair actions by majority holders. The ruling has been frequently cited in later cases, becoming a central part of UK minority shareholder rights law.
Conclusion
Re A Company [1986] BCLC 376 established essential criteria for minority shareholder rights, clarifying unfairly harmful conduct and potential court remedies under section 459 of the Companies Act 1985. The case highlighted that courts must account for informal shareholder arrangements, especially in small, partnership-style companies. Combined with courts’ flexible authority, this ensures minority shareholders can address unfair treatment. These principles continue under section 994 of the Companies Act 2006, aiding fair company governance. Cases such as Ebrahimi v Westbourne Galleries [1973] AC 360 reflect similar principles for partnership-like companies, demonstrating judicial willingness to intervene when shareholder expectations are disregarded. The standards from Re A Company remain applicable in company law.
