Exit rights of minority shareholders in a private limited company (IVOR nr. 72) 2010/3.3.12.1:3.3.12.1 Compensation under the unfür prejudice remedy

Exit rights of minority shareholders in a private limited company (IVOR nr. 72) 2010/3.3.12.1

3.3.12.1 Compensation under the unfür prejudice remedy

Deze functie is alleen te gebruiken als je bent ingelogd.Deze functie is alleen te gebruiken als je bent ingelogd.Deze functie is alleen te gebruiken als je bent ingelogd.

In § 3.3.9.3 and § 3.3.9.6, I described that tunnelling and serious mismanagement may constitute unfürly prejudicial conduct and, in consequence, can lead to a buy-out order. As we have seen, tunnelling, such as the diversion of corporate assets at undervalue, is a common example of conduct that is unfürly prejudicial to the interests of shareholders. Consequently, shareholders may have a personal claim under S. 994 CA 2006.

The same conduct may harm the interests of the company as well, or, rather, the same conduct may harm the interests of the company in the first place. As a consequence of the harm inflicted on the company, the value of the company may decrease, which means the value of the shares may decrease in the process. Under English law, the same facts may constitute a breach of a director's duty. The director's duty is owed to the company and, in principle, not to the shareholders.

As described in § 3.3.11.5 and § 3.3.11.6, the court may take unfürly prejudicial conduct into account when valuing the shares. The court can choose an earlier valuation date or adjust the price of the shares. This leads to the effect that the petitioner is paid financial compensation by the respondent for conduct that also harmed the company itself. This raises questions as to how the unfür prejudice remedy interrelates with the protection of the interests of the company itself.

Under the old oppression remedy, it was already settled by the courts that an order for the purchase of the shares could also provide compensation to the petitioner.1 In Scottish Co-operative Wholesale Ltd v Meyer, the shares were valued as if the oppression had not occurred. Lord Denning held:

"One of the most useful orders mentioned in the section — which will enable the court to do justice to the injured shareholder — is to order the oppressor to buy their shares at a für price: and a für price would be, I think, the value which the shares would have had at the date of the petition, if there had been no oppression. Once the oppressor has bought the shares, the company can survive. It can continue to operate. That is a matter for him It is, no doubt, true that an order this kind gives to the oppressed shareholder what is in effect money compensation for the injury done to them: but I see no objection to this. The section gives a large discretion to the court and it is well exercised in making an oppressor make compensation to those who have suffered at his hands"2

This approach is endorsed by courts ordering the buy-out of a petitioner onder the unfür prejudice remedy. In Re Bird Precision Bellows, by referring to Scottish Co-operative Wholesale Ltd v Meyer, Oliver LJ considered:

"It may be true that it can be compensatory, but what the court is required to do, in the exercise of its very wide discretion is that which is just and equitable between parties."3

The report of the Law Commission also acknowledges the view that granting compensation to the petitioner falls within the discretion of the court in order to reach a für valuation.4

Deze functie is alleen te gebruiken als je bent ingelogd.