Question 1

Terry, Bob, and Audrey set up a catering business called Likely Lads Ltd. They each held one-third of the shares and were directors of the company.

Bob became involved in a new venture and neglected his duties. Terry and Audreydecided to remove Bob from the company. The articles provide that ‘in the event of a resolution to remove a person from the board, the shares held by that director shall on a poll have three votes per share instead of the usual one’. It is known that Bob has overreached himself financially due to his involvement in the new venture.

Advise Terry and Audrey how they might go about removing Bob from the board and whether Bob might have a claim under CA 2006, s. 994 or IA 1986, s. 122(1)(g).

Answer guidance

You need to explain the steps that T and A would have to take in order to remove Bob from the board, given the weighted voting clause (per Bushell v Faith [1970] AC 1099). To alter the articles by special resolution under CA 2006, s. 21, T and A would first need to make a rights issue to acquire the necessary voting control (power to allot shares: CA 2006, s. 550; pre-emption rights: CA 2006, s. 561), and then alter the articles to remove the weighted voting clause, and then remove B as director using CA 2006, s. 168. There are side issues here too, particularly whether T and A would be in breach of duty in exercising their power to allot shares for this ulterior purpose, and whether alteration of the articles in this way would be in accordance with Allen v Gold Reefs of West Africa Ltd [1900] 1 Ch 656.

Recognize that LL Ltd may well be a quasi-partnership company (using Ebrahimi v Westbourne Galleries Ltd [1973] AC 360) and so such a scheme could amount to unfairly prejudicial conduct under CA 2006, s. 994, with a range of remedies under s. 996. Advise T and A on the strength of a petition by B under CA 2006, s. 994. You should consider O’Neill v Phillips [1999] 1 WLR 1092 on ‘unfairness’, and look at cases such as Re Cumana Ltd [1986] BCLC 430 (rights issue), Brownlow v G H Marshall Ltd [2000] 2 BCLC 655 (removal) and Re RA Noble & Sons (Clothing) Ltd [1983] BCLC 273 (justified removal). Because of his own behaviour B may not succeed in his petition and so you should advise on the alternative possibility of a petition for the just and equitable winding up of the company under IA 1986, s. 122(1)(g), considering Ebrahimi v Westbourne Galleries Ltd [1973] AC 360 in particular.

Question 2

“The words of [section 994] are wide and general and ... the categories of unfair prejudice are not closed.” (Arden J, Re BSB Holdings Ltd (No. 2) [1996] 1 BCLC 155)

Discuss.

Answer guidance

For this question you need to look in depth at CA 2006, s. 994, focusing on the concept of ‘unfairly prejudicial conduct’. You will need to have an understanding of why the section exists – what it aims to do and what it replaced – as well as problems associated with it, so that you can evaluate whether the section should be ‘wide and general’ or not. You should show you understand how s. 994 fits within the wider topics of shareholder control and minority shareholder remedies, looking in particular at its relation with derivative claims, and use this to analyse the merits of the approach indicated in the quote.

Consider how the courts have interpreted ‘unfairness’ and ‘prejudice’. This requires you to examine O’Neill v Phillips [1999] 1 WLR 1092 in some depth, explaining how the terms were interpreted and the reasons for this. Don’t look at O’Neill v Phillips in isolation though – consider how far the approach taken there fits with other cases and judicial statements, including Re BSB Holdings Ltd (No. 2) [1996] 1 BCLC 155, Re Saul D Harrison and Sons plc [1995] 1 BCLC 14, and Re Coroin Ltd [2013] EWCA Civ 781. Examine the kind of behaviour that has (and has not) been held to be unfair prejudice, how far the notion of ‘equitable considerations’ expands the concept, and assess how far the courts have left the boundaries wide, or imposed restrictions.