The position of minority shareholders 313withdraw from the company on reasonable terms. A minority shareholder expectation
will not give rise to a right to petition merely because the shareholder reasonably and
legitimately thought something likely to happen. In fairness or equity the minority
shareholder must have a right to expect the thing to happen.(10) There would be no unfair prejudice if the majority offered to buy the minority’s shares
at a reasonable price. This price should not be at a discount on account of the share-
holding being a minority shareholding, it should amount to the value of the equivalent
proportion of the share capital. (In special circumstances a discounted valuation might
be appropriate.) An independent expert should usually make this valuation. Both sides
should have access to all company information which would affect the value of the
shares.
(11) The majority shareholders should be given a reasonable time in which to make the
offer to buy out the minority.
In Re Guidezone Ltd (2000)Parker J said that O’NeillvPhillipshad established that:
‘unfairness [for the purposes of s. 994] is not to be judged by reference to subjective
notions of fairness, but rather by testing whether, applying established equitable principles,
the majority has acted, or is proposing to act, in a manner which equity would regard as
contrary to good faith.’ This statement has since received considerable judicial approval.
The Insolvency Act 1986
A court can wind a company up under ss. 122– 4 of the Insolvency Act 1986 on the grounds
that it is just and equitable to do so. Even a single shareholder can petition the court to
do this.
Protection from the courts
The courts will protect a minority shareholder in three situations: fraud on the minority, if
the personal rights of a member have been infringed, or as regards an act which is ultra vires.
At common law, minority shareholders who have been defrauded by a decision of the
majority have the right to have the decision overturned. Since the coming into force of the
Companies Act 2006, there is no longer much need for an action for fraud on the minority.
First, in cases in which the company itself was defrauded, usually by transferring the
company’s assets to the directors, an aggrieved shareholder could now bring a derivative
claim. Second, in cases in which the controlling shareholders and directors defrauded only
the minority shareholders, and then passed a resolution to ratify this decision, s. 239(4) will
allow the ratification to be effective only if it could be achieved without the votes of the
director in question. Nor can this provision be evaded by the board of directors voting to
ratify the matter at a board meeting rather than at a company meeting. Section 175(5) will
allow the board of directors to approve a director’s conflict of interest only if the vote to
approve can be passed without the votes of the errant directors. It is still possible that the
minority could be defrauded despite these safeguards. However, in such cases a claim for
relief from unfair prejudice would almost always seem preferable to an action for fraud on
the minority.
Where the personal rights of a member have been infringed
In the previous chapter we saw an example of a court holding that a member’s personal
rights had been infringed in Pender vLushington. It might be remembered that the company
chairman refused to accept the votes of Pender’s shares, as the articles required him to do,