Routledge v Skerritt [2019] BCC 812

Facts

  • Mr. Routledge was a minority shareholder in the company, while Mr. Skerritt was the majority owner and director.
  • Routledge alleged unfair prejudice, claiming Skerritt retained profits without distributing dividends despite consistent company earnings.
  • Skerritt contended that profit retention was necessary to fund business expansion.
  • The company recorded steady profits over several years without making dividend payments to shareholders.

Issues

  1. Whether the retention of profits by the majority shareholder and director, resulting in no dividends being paid despite company profitability, amounted to unfair prejudice under section 994 of the Companies Act 2006.
  2. Whether profit retention for alleged business expansion was a genuine business purpose or a tactic to deprive the minority shareholder of financial benefit.

Decision

  • The High Court examined company financial records, investment strategies, and communications with shareholders to determine the genuineness of profit retention.
  • The court concluded that Mr. Skerritt's profit retention was justified by valid business reasons and did not constitute unfair harm to Mr. Routledge.
  • It was held that a mere disagreement by a minority shareholder over dividend decisions, in the absence of unfairness or harm, does not establish unfair prejudice.

Legal Principles

  • Unfair prejudice under section 994 of the Companies Act 2006 requires both unfair conduct and resultant harm to minority shareholders.
  • Courts are generally reluctant to interfere with company management decisions on dividends unless the conduct is clearly unjust or aimed at disadvantaging minority shareholders, particularly in quasi-partnerships.
  • Withholding dividends may be found unfair in certain contexts, especially where it represents a sudden and unjustifiable departure from established practices (as illustrated by Ebrahimi v Westbourne Galleries Ltd [1973] AC 360).
  • Substantial evidence is necessary to show that the actions of the majority are both harmful and unfair to the minority shareholder.

Conclusion

The High Court in Routledge v Skerritt [2019] BCC 812 confirmed that profit retention for legitimate business purposes does not amount to unfair prejudice. Minorities seeking relief must demonstrate both harm and unfairness, and the courts remain cautious about intervening in valid company decisions absent clear evidence of unjust treatment.

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