Re A Company [1986] BCLC 376 (ChD)

Facts

  • The case involved a private company with two equal shareholders.
  • Disagreements between the shareholders over management led to a deadlock in running the business.
  • One shareholder alleged that the other, acting as managing director, excluded them from decision-making processes, mishandled company funds, and failed to distribute dividends.
  • These actions were claimed to constitute unfairly harmful conduct towards the minority shareholder.

Issues

  1. Whether the actions of the managing director, including exclusion from management and alleged financial misconduct, constituted unfairly harmful conduct to the interests of a minority shareholder under section 459 of the Companies Act 1985.
  2. Whether breaches of informal, unwritten agreements among shareholders could be considered unfairly prejudicial for the purposes of court intervention.
  3. What remedies the court could order in response to a finding of unfairly prejudicial conduct.

Decision

  • The court held that the conduct complained of, including exclusion from management, amounted to unfairly harmful conduct.
  • Mr. Justice Hoffman emphasized an objective assessment of “unfairly harmful conduct,” distinguishing between ordinary business disagreements and breaches of company rules—whether written or unwritten.
  • The court confirmed that harm could extend beyond financial loss to include breaches of reasonable expectations arising from informal arrangements in small, quasi-partnership companies.
  • The court ordered the respondent to purchase the claimant’s shares at a fair value, enabling the claimant to exit the deadlocked company.

Legal Principles

  • Unfairly prejudicial conduct under section 459 (now section 994) of the Companies Act may cover breaches of informal shareholder agreements, not merely financial harm.
  • The court will objectively assess whether actions breach the legitimate expectations of members, especially in small, partnership-style companies.
  • Courts have broad discretion to grant remedies, including ordering the purchase of shares, management changes, or authorizing company claims.
  • Recognition of the significance of unwritten understandings in closely-held companies.

Conclusion

Re A Company [1986] BCLC 376 clarified that unfair prejudice under company law includes breaches of informal shareholder arrangements and not only financial harm, thereby strengthening minority shareholder protection and expanding the court's remedial discretion under section 459 of the Companies Act 1985.

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