Re Bird Precision Bellows [1985] 3 All ER 523

Facts

  • The case involved the application of section 459 of the Companies Act 1985, which allowed minority shareholders to seek relief when subjected to unfair prejudice.
  • Minority shareholders alleged conduct damaging their rights within the company, requiring the court to assess whether such conduct constituted unfair harm.
  • The court considered whether majority shareholders or the company should be compelled to purchase the minority’s shares as a remedy for unfair prejudice.
  • The dispute centered on the appropriate method and valuation for a buy-out order in circumstances where minority shareholders were unfairly harmed.

Issues

  1. What constitutes unfair prejudice towards a minority shareholder under section 459 of the Companies Act 1985?
  2. Whether a buy-out order is an appropriate remedy in cases of unfair prejudice, and if so, what principles govern the fair valuation of the minority shares?
  3. How should courts determine the correct valuation method for shares in the context of unfair prejudice?

Decision

  • The court clarified that unfair prejudice includes conduct that damages a member’s rights in a manner both unfair and objectively unreasonable.
  • Buy-out orders were endorsed as a primary remedy, compelling the majority or the company to purchase the minority’s shares.
  • The court emphasized that fair valuation should typically refer to share prices before the occurrence of unfair conduct.
  • Reductions in share value based on minority status were generally deemed inappropriate where the unfair actions caused the loss in value.
  • Proportional valuation was not mandatory; the court could select a method fitting the company’s specifics, nature of harm, and member’s position.

Legal Principles

  • Unfair prejudice involves conduct more serious than ordinary business disagreements; it requires conduct that a fair-minded observer would regard as unjust or unreasonable.
  • Courts have wide discretion under section 459 to select remedies tailored to the specifics of each case, including buy-out orders and corrective measures.
  • The valuation of shares in a buy-out order should be fair and avoid further penalizing the minority, usually referencing the position before unfair acts occurred.
  • Rigid proportional valuation is not compulsory; courts may use alternative methods, such as asset-based or cash-flow valuation, if that best addresses the harm.

Conclusion

Re Bird Precision Bellows established that unfair prejudice claims under section 459 should be remedied primarily through buy-out orders, with a focus on fair, context-specific share valuation. The decision clarified the test for unfair harm and continues to inform minority shareholder protections and company law remedies in the UK.

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