How Long Do Shareholders Have To Bring An Unfair Prejudice Claim?
The UK’s highest court, the Supreme Court, has decided there is no limitation period on unfair prejudice claims brought by a shareholder – although that is no excuse to be tardy with bringing your claim, as our Head of Dispute Resolution, Ieuan Jones, explains.
What is unfair prejudice?
Unfair prejudice as a concept is quite complex to explain; however, in a nutshell, it is a right under statute for a shareholder (or any member of a company) to bring court proceedings against the other shareholders, where they believe the company’s affairs have been conducted in a way that is unfairly prejudicial to their interests. An unfair prejudice claim is sometimes called a “corporate divorce”, and unfair prejudice petitions can provide vital protection to shareholders and their interests.
Common examples of unfair prejudice include the majority shareholders unlawfully enriching themselves at the expense of the minority shareholders, or the company’s management excluding a shareholder in spite of there being a legitimate expectation they would be included in how the company is run. These situations often give rise to an unfair prejudice petition.
How does a shareholder know whether they have been unfairly prejudiced?
That is a very interesting question, which the statute (section 994 of the Companies Act 2006) does not really elaborate on. It has therefore been up to courts to determine whether there has been unfair prejudice on a case-by-case basis.
Time limits on unfair prejudice claims
Until a few years ago, it was received wisdom that there was no limitation period within which a shareholder could bring their petition for unfair prejudice. All that changed with a ruling in 2024, however, when the Court of Appeal decided that, contrary to everyone’s understanding, the provisions of the Limitation Act 1980 applied to unfair prejudice as they would any other type of claim. According to that decision, petitions would therefore have to be brought to court within either six or twelve years (as the case may be) – otherwise all hope of bringing a claim for unfair prejudice would be lost because it is out of time.
Now, ruling in the case of THG plc v Zendra Trust Company, the Supreme Court, as the UK’s highest court, has reversed this decision. Its reason is that a petition for unfair prejudice was neither an action upon a speciality under statute (in which case the limitation period would be 12 years), nor an action to recover a sum of money (in which case it would be 6 years). Further, the court’s very wide discretion under section 996 to grant whatever order it thinks fit in such cases is incompatible with these time limits being imposed on an unfair prejudice claim.
It is therefore decided law once again that there is no “official” limitation period within which a petition for unfair prejudice may be brought to court by a shareholder.
What does this decision mean for future unfair prejudice petitions?
In this particular case, the actions of the directors were under scrutiny because it was alleged by the minority shareholders that they had been unjustly excluded from an allotment of bonus shares. Crucially, that allotment happened in 2016, however the petitioning shareholders waited till well into 2022 to amend their case to make that allegation. The majority objected on the ground that they were therefore out of time and had left it too long to make that argument before the court.
We now know that that argument is wrong – the Supreme Court has ruled that there is no limitation period that applies to such unfair prejudice claims, so the minority were able to proceed to make their case before the court.
Does that therefore mean shareholders now have the luxury of taking as long as they like to bring a petition for unfair prejudice, safe in the knowledge that no one could possibly object to how long it had been between the alleged action and finding their way to the court door? Far from it.
The “received wisdom” that there is no limitation period that applies to bringing an unfair prejudice petition also came with a fairly hefty caveat – the court still holds a discretion to bar claims where the delay in bringing it was determined to be excessive. That discretion remains in place and is completely unaffected by this decision by the Supreme Court.
So, it could still be possible, regardless of this latest decision, for the majority to argue that the court should not hear the claim because it has simply taken too long to bring it.
It therefore remains as important as it always has been that “wronged” shareholders who believe they have been unfairly prejudiced do not dither or delay in taking action.
If you are in any doubt regarding your legal position and ability to bring an unfair prejudice claim, you should talk to a specialist in this area who will help you navigate what is an often complex and confounding area of law.
At GA Solicitors, our specialist business dispute resolution team are on hand to help you navigate this type of shareholder dispute and can provide you with clear and trusted advice regarding your next steps. To discuss your position in more detail, please call our solicitors in Plymouth on 01752 203500 or email me directly at ieuan.jones@GAsolicitors.com.
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