Unfair prejudice: how long is too long?

In a recent case the Court of Appeal considered whether a delay of 17 years in presenting an unfair prejudice petition was too long.

Background

Andrew Bailey presented a petition in respect of Cherry Hill Skip Hire Ltd (“the Company”). He was a minority shareholder. His mother was a majority shareholder. Andrew was originally a director but fell out with his mother in 1985 and was excluded from the management of the Company. Andrew’s daughter Jenna (with whom he had also fallen out) became a director.

Between 2001-2003 Andrew sought to obtain information about the Company’s finances and the value of his shares. He threatened a petition but never presented one.

Over 17 years later in July 2020, Andrew presented a petition, complaining that:

• he had been unfairly excluded from the management of the Company in 1985;
• the directors had diverted the goodwill and assets of the business to another company in or around 2001;
• his shareholding had been fraudulently transferred in 2007; and
• the Company had been fraudulently dissolved and struck off the register.  

The response argued that Andrew had delayed and therefore acquiesced to the complained about conduct. The judge at first instance agreed but Andrew appealed.

The Court of Appeal allowed the appeal. It found that whilst Andrew did delay, it did not follow he was acquiescing in any mismanagement or that the directors were entitled to expropriate his shares due to his inaction.   It noted that “a shareholder is entitled to assume that the company is being managed properly by its directors in accordance with their fiduciary and statutory duties, and that its constitution has been followed” even if that shareholder is passive. 

Practical Implications

1. Delay in pursuing a legal remedy about a director’s conduct does not always equal acquiescence. Just because a dispute is historic doesn’t mean it is too late to seek a legal remedy.

2. Passive shareholders be warned. Unfortunately, as in this case, even where directors are family members they cannot always be trusted.

3. Shareholders’ agreements are worthwhile. It is better to spend some money on legal fees ensuring that the business is set up right than to spend tens or hundreds of thousands on litigation if things go wrong.  

4. Seek early legal advice because each case turns on its own facts. It is best to avoid arguments about delay entirely.

If you have concerns about the conduct of fellow shareholders and/or directors then contact our corporate disputes solicitors George Gwynn or Morgan Rees to seek specialist advice on the options available to you.