Mr and Mrs Ronnan were shareholders and directors with Mr Stansfield within the Rumour Bar and Club Limited company. 55% of the shares were owned by Mr and Mrs Ronnan, and Mr Stansfield owned 45%. Between them, they agreed that all three directors would run the business of the club. This was challenged after the three fell out, and Mr Stansfield closed the club abruptly.

Following this, the Ronnans brought an unfair prejudice petition, alleging serious misconduct on the part of Mr Stansfield. The allegations included:

·     Mismanagement of the lease, where he threatened to sell the lease if the Ronnans did not pay him £25,000;

·     Exclusion of other shareholders, where he shut down the club and excluded the Ronnans from decision-making;

·     Asset stripping for the benefit of another company, Truth Nightlife Limited, a business controlled by his brother.

This, altogether, meant that Mr and Mrs Ronnan alleged that the trust between shareholders had irreparably broken down, and their shares had their value reduced as a result. Their case was this: they were powerless to stop Mr Stansfield from acting as he did, and they sought a buyout of their shares based on the company’s valuation prior to June 2023.

Decision and appeal

In the first instance, Mr Stansfield sought to strike the petition out, citing abuse of process. He argued that as the Ronnans controlled the board and the company, they could take steps against his alleged defaults. The response from the Ronnans was that the cumulative effects of Mr Stansfield’s actions rendered them practically unable to prevent the conduct. The District Judge dismissed Mr Stansfield’s application. He concluded that the alleged behaviour did render Mr and Mrs Ronnan powerless.

When Mr Stansfield appealed, the court decided that the key issue was: can an unfair prejudice petition by majority shareholders be justified where they face difficulties in using their control to remedy misconduct?

Fancourt J heard the appeal and decided that a s994 petition depended on four matters:

·     The nature of the prejudice alleged;

·     Whether it is permissible, in principle, for a company to take measures to address that practice;

·     Whether it is possible for the petitioner to cause the company to implement a remedy;

·     What the appropriate remedy is.

Where the company is in an extreme situation, such as the stripping of assets or lack of access to cash reserves, a petition may be the realistic claim. Where there are other circumstances, a petition is an inappropriate remedy.

The majority shareholder must show it was practically impossible, not just difficult, for the company to use its corporate control in order to pursue a petition for unfair prejudice. Justice Fancourt determined that Mr and Mrs Ronnan had not sufficiently established their claim and noted that alternative avenues for asset recovery were available to them. As a result, the appeal succeeded and the petition was dismissed.

Concluding thoughts

It is unusual for a s.994 petition to be presented by majority shareholders. These cases are usually related to abuse of corporate control and arise in situations where the petitioner has no other forms of recourse. The fact that this is the usual course of action is irrelevant, and Justice Fancourt did not rule out the possibility of a majority shareholder pursuing an unfair prejudice petition; he simply limited it to situations where the majority shareholder has no further recourse and it is practically impossible to act otherwise.

Cases where this applies will inevitably be exceptional and rare. Legal practitioners need to examine every avenue available to their clients, considering what assets they have and can use before even contemplating a petition for unfair prejudice. Corporate disputes should consider litigation only after assessing the enforcement or application of shareholders’ rights, both contractual and statutory.

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