Section 994 Petitions – 10 Tips for the Minority Shareholder

1. Seek early answers/explanations from the Company’s decision makers – Where a dispute arises that the minorities rights have been unfairly prejudiced, try to get the decision makers to explain in writing why they have acted against the minorities interest.
2. Understand your shareholder rights – Shareholders will have rights to straight answers from the board to proper questions asked at general meetings.
3. Review the Articles of Association – Look at the articles and see what rights shareholders have to call a meeting and put questions to the directors/majority.
4. Beware of the General Principle – Shareholders have no right to inspect or receive disclosure of the company books save for those disclosed on company’s house/under statutory obligations.
5. Use any obstruction to your advantage – If you are obstructed when using the machinery of the company in obtaining disclosure (e.g. general meetings etc) you will have a stronger case when trying to prove unfair prejudice. This will help set you up for a s.994 petition.
6. Seek to obtain early pre-action disclosure under CPR 31.16 – If the directors/majority are being obstructive, consider an application for pre-action disclosure. Do note however that the courts are reluctant to grant wide/extensive pre-action disclosure.
7. Consider the costs implication before making 31.16 application – The general costs rule under CPR 46.1 is that costs of any pre-action application and the costs of complying with any order lays with the person asking for the order (even if successful).
8. Summary judgement/strikeout – An application for summary judgment/strikeout can be made by a party to a s.994 petition. When petitioning, ensure your petition is not vulnerable to such applications.
9. Aim for early settlement – Use ADR/mediation, hold joint settlement meetings and make offers where appropriate.
10. O’Neill v Phillips [1999] 1 WLR 1092 gives guidance on how to pitch a written offer at the beginning of an unfair prejudice petition:

• Offer to purchase/sell shares at fair value (fair value will be without discount for minority shareholdings);

• Ensure determination of the shares value is done by competent independent expert;

• Ensure there is mutual open disclosure for the valuation of the shares i.e. ensure all parties have equal access to information about the company;

• Make an appropriate offer on costs;

Clyde Darrell