4.4.4.4 The interests of the members

Interests are a wider concept than legal rights.1 Besides the rights laid down by law and in the company's constitution, shareholders may have interests derived from equity law, such as legitimate expectations, especially in a close company. In a public company, all arrangements are supposed to have been addressed "adequately and exhaustively" in the constitution, so equitable considerations can hardly arise from the ambit of the formal constitution of the company.2

In addition, members of a company may have different interests even though their rights may be identical. Case law has proved that conduct can be unfairly prejudicial even if all members suffer from the same alleged conduct. In the McGuinness case, McGuinness and Black each held 50 per cent of the shares in a private limited company. The company had traded successfully before their relationship deteriorated, which led to difficulties in running the business. Black later gained control over the board and thereby sought to wind up the company and sell off its assets.3 McGuinness petitioned under the Companies Act 1985 s. 459 alleging unfair prejudice caused by the arbitrary and adverse way of disposing of the company's properties by winding-up instead of choosing another way which would have resulted in realization of the going-on value. The respondent shareholder stated in defence that the conduct affected all shareholders and should not fall within the scope of s. 459. The court disagreed, stating that the same effect on all the shareholders did not necessarily mean it was not unfairly prejudicial to the interests of the petitioner. Winding-up and liquidation destroyed the goodwill value within the company. Other solutions to the dispute which would not have destroyed the goodwill value should have been preferred. Interim interdict was therefore granted.4

Another occasion showing that the same conduct may be unfairly prejudicial to the interests of some members in particular is when the majority shareholder can compensate himself through other means. In Re Sam Weller & Sons Ltd, one of the petitioner's claims was that the sole director, S, had continued to pay low dividends for a long time and refused to approve an increase each year, notwithstanding the ever more lucrative business. At the same time, he withdrew exclusive benefits for himself by lening the company buy a seaside flat costing £ 22,400, proposing capital expenditure (for his own benefit) by the company, and refusing to disclose the emoluments. 5 S sought to strike out the petition alleging that as the conduct objected to affected all members equally, including himself, it would not amount to any unfair prejudice to the petitioner. The court noted that when the majority shareholder could benefit himself through the directorship, the policy of low or no dividend distribution affected the interests of non-director shareholders more, and under certain circumstances, they were the only interests that were prejudiced. So the allegation that the conduct affected all members equally or the interests of the respondent were also prejudiced by the conduct was irrelevant.

More plainly, the same conduct towards all the members can be unfairly prejudicial if by that very conduct, the majority expropriates the minority. When controlling shareholders have other fish to fry, the same conduct only makes the minority suffer. The majority shareholder, for instance, can deliberately cause the company's business to decline or even devastate it, and then transfer the business at gross undervalue to another company under his control.