Remedies for Unfair Prejudice
Buy-out as a remedy for unfair prejudice claims
This is the most common remedy and a likely outcome of a successful mediation involving any shareholder dispute, especially unfair prejudice.
A buy-out is aptly named, as it is simply that the majority shareholders buy out the minority, for a price. A ‘clean break’ is therefore achieved, which is usually what the parties to a dispute want to achieve in any event.
It can also often be the case that the company buys back the minority shares by way of an own share buyback. In this instance, the shares will be treated as cancelled when they are purchased.
We will advise on the best course to agreeing a valuation and there are usually three methods of determining the value:
- Provision in the articles for a speculative future buy-out;
- Resolved by the court; and
- A third party expert’s report, which can also be binding if agreed to be binding beforehand.
We have very close connections with experts, such as accountants and tax advisers, who can provide reports which assess the valuation of shares to be bought out. We also regularly advise on the applicability of minority discounts, where the court has to balance the fact that non-controlling shareholdings are less valuable with the fact that a shareholder who is being forced out should not be obliged to sell his or her shares at a discount.