Re Macro (Ipswich) Ltd [1994] 2 BCLC 354

Facts

  • The case concerned minority shareholders alleging that financial decline in Macro (Ipswich) Ltd was due to management failures.
  • The minority shareholders claimed that this incompetence by the company’s management constituted unfair prejudice under section 459 of the Companies Act 1985.
  • The company’s financial decline was attributed to alleged poor management decisions without proof of dishonesty or breach of agreed shareholder terms.

Issues

  1. Whether poor management or incompetence by company directors constitutes unfair prejudice under section 459 of the Companies Act 1985.
  2. Whether such conduct must breach standards of fair treatment or shareholders’ reasonable expectations to be actionable.
  3. The extent to which mismanagement is distinguishable from unfair prejudice in shareholder disputes.

Decision

  • The Court of Appeal held that poor management, without dishonesty, bad faith, or breach of agreed terms, does not amount to unfair prejudice.
  • The judgment clarified that flawed business decisions or general mismanagement, even if resulting in financial loss, are insufficient for an unfair prejudice claim.
  • The Court distinguished actions justifying derivative claims for director failures from conduct amounting to unfairly prejudicial treatment of minority shareholders.
  • Section 459 was held not to be a remedy for ordinary business errors but for unfair conduct affecting shareholder rights.

Legal Principles

  • Prejudice under section 459 (now section 994) includes not only financial loss, but also harm to a shareholder’s interests such as removal from management or unfair dilution.
  • For unfair prejudice, more than simple harm is required; there must be unfairness measured against the company’s constitution or legitimate expectations of shareholders.
  • Breaches of fair dealing, shareholder agreements, or legitimate expectations must be shown to establish unfair prejudice.
  • Mismanagement or negligence may ground a derivative claim for director breach of duty, but does not in itself constitute unfair prejudice absent unfair conduct towards shareholders.

Conclusion

The Court of Appeal in Re Macro (Ipswich) Ltd confirmed that poor management alone does not meet the threshold for unfair prejudice under section 459; instead, shareholders must demonstrate unfairness breaching agreed terms, standards of fair dealing, or legitimate expectations. This distinction ensures that section 459 protects against unfair conduct but does not operate as a remedy for ordinary business errors or incompetence.

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