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Dispute Resolution analysis: This decision highlights the dangers which parties face when seeking the ‘nuclear option’ of petitioning to wind up a company on the ‘just and equitable’ ground instead of petitioning under section 994 of the Companies Act 2006. In this case, an unfair prejudice petition was deemed to be an alternative remedy not pursued by the petition. His decision to take this route and to reject a fair offer to buy made by the respondents led to the petition being struck out.
This decision represents a reminder of two major dangers faced by minority shareholders seeking relief in respect of conduct of the company/the majority to which they object. The first is to give serious thought to any offers made to purchase their shares before they issue proceedings. If that offer constitutes a valid O’Neill v Phillips offer, any claims issued are vulnerable to a potential strike-out. Second, courts increasingly view unfair prejudice petitions under section 994 of the Companies Act 2006 as the primary means of obtaining relief. Petitions for just and equitable winding-up and derivative claims are both vulnerable to being struck-out (or in the case of derivative claims, permission being denied) if the court considers that the unfair prejudice petition could have been used instead.
A dispute arose between two brothers, each of whom was a 30% shareholder in a family farming business. Their parents each also held a 5% shareholding in the business and the remaining 30% was held by the brothers jointly. In 2010, the Petitioner (“P”) informed the Second Respondent (“R2”) and his parents that he wished to operate an independent farming business. A letter of intent was signed which set out a vision for the brothers to operate independent farming businesses and for the relationship in the meantime to be governed by a shareholders’ agreement. R2, with the apparent support of his parents, had identified land in Wales which he considered presented an excellent farming opportunity for him. The land in Wales was purchased but the shareholders’ agreement was not put into effect. In 2014, the company’s livestock and equipment were divided between P’s farm in Bedfordshire and R2’s farm in Wales. Thereafter, the company’s business continued by operating two separate farms. From 2016, P, through solicitors, pressed for a demerger of the businesses. A letter of claim threatening a just and equitable winding-up petition was sent on 25 January 2018. On 1 June 2018, Rs sent a detailed offer to purchase P’s shares in the company which included a comprehensive valuation methodology. P rejected the offer and presented a winding-up petition. Rs applied to strike out the petition.
The offer made to P was a fair offer to buy in accordance with the decision of the House of Lords in O’Neill v Phillips. In addition, the facts and matters complained of by P in the winding-up petition would have additionally allowed him to petition under section 994 of the Companies Act 2006 on the basis of unfair prejudice. That option represented an alternative remedy which rendered it unreasonable for P to press for the nuclear option of a just and equitable winding-up. The judge commented that he was at a loss to understand why P had not sought relief under section 994 from the outset. The petition was, therefore, struck out.
This article was first published by Lexis PSL on 14 May 2020.
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