1

Table of content
1.0 Unfairly prejudicial conduct (under the CA 1985)……………………3
1.1 H R Harmer Ltd (1959)………………………………………………….3

1.2 Scottish Cooperative v/s Meyer………………………………………..3

2.0 The general rule of company law is that the wishes of the majority

will prevail majority ………………………………………………………4

2.1 Foss v/s Harbottle ………………………………………………………. 4

2.2 Foss v/s Harbottle led to two general rules…………………………….4

3.0 Just and equitable winding up…………………………………………...4

3.1 Situations where winding up orders have been made include

where………………………………………………………………………5

3.2 Under S122 (g) of the Insolvency Act 1986, any shareholder may

apply to have a wound up on just and equitable grounds. There are 2

main categories which apply here……...………………………………..5

4.0 Derivative actions………………………………………………………….5

5.0 Injunction (Section 169 of CA)……………………………………………5

6.0 Personal action (Section 174 of the Co’s Act)………………………….5

7.0 Conclusion………………………………………………………………….6

2
 Along the rule of majority supremacy, provision is also made by way of exceptions for
protection of minority interest. This is essential because, in its absence the company cannot
function smoothly. For example those who take interest in shares of companies generally have
to accept majority rule. However, there are several rights at law that the minority possess to
protect their interest and ensure that they are treated fairly. The underneath paragraphs will
highlight on how minority shareholders are protected.

1.0 Unfairly prejudicial conduct (under the CA 1985)

Under S459 of the companies Act 1985, any member may apply to the court for
remedies on the grounds that the company’s business is being conducted in a manner which is
unfairly prejudiced against the shareholder generally, or against any subsection of shareholders.
For example:

• If directors paid themselves too high salaries, there should be no dividend for
shareholders;

• Directors could issue new shares to themselves on favorable terms;

• Directors could minimize a dividend paid to non-cummulative preference shareholders;

or

• Directors may be unfairly removed from the board or unfair treatment.

1.1H R Harmer Ltd (1959)

H R Harmer founded a stamp business. In 1947, H R Harmer formed a company to
buy the business, at this time Harmer was 77.The initial directors of the company were H R
Harmer and his sons Cyril and Bernard. The shareholders were H R Harmer, Cyril, Bernard and
Harmer’s wife. Together and his wife had over 75% of the votes, and his wife always voted with
H R Harmer. H R Harmer always ran the business in an autocratic way: hiring and firing ‘yes
man’ ignoring views of the other directors, opening branch in Australia which folded and sold a
successful branch in the US. The sons sued for unfair prejudicial conduct. The court ordered
that H R Harmer was to be employed as a senior stamp consultant with a salary of $2500 per
annum; H R Harmer was not to interfere in any way with the running of the company; H R
Harmer was appointed president for life but with no powers; and the company was forced to buy
his shares from H R Harmer.

1.2 Scottish Cooperative v/s Meyer.

3
 It was held that it is oppressive where the inactivity of the board nominated by the
holding company allowed the run down of the business of the subsidiary company. It is to be
noted that the conduct of the company may be unfairly prejudicial to a shareholder even if it
affects all shareholders also for example, the refusal to pay a dividend, though affecting all the
members equally may unfairly prejudice a particular shareholder because of his personal
circumstances.
An oppressive conduct means a conduct which is a visible departure of fair dealing.

2.0 The general rule of company law is that the wishes of the majority will
prevail majority.
In general, when shareholders decide on aspects of company policy, decisions are
taken by majority rule. If a director has committed a wrong against the company, the company
must sue them and for this to happen a majority of shareholders must vote for the company to
sure the director.

2.1 Foss v/s Harbottle (1843)

Harbottle was a director of a company formed to buy land, Foss was a minority shareholder. He
sold some of his own land (along with another director) to the company. Foss alledged that
Harbottle gained an excess profit from this sale and tried to sue Harbottle. However, if Harbottle
acted wrongfully, it was against the company, and such only the company could sue and not
Foss. For the company to sue, a majority shareholder was needed to agree, since otherwise a
majority may ratify the decisions made.

2.2 Foss v/s Harbottle led to two general rules:

• The proper rule: if a company has been wronged, then the company must be the
claimant.

• The indoor management rule: if the act which is being claimed as wrong could be ratified
by a vote in the general meeting, then the company is not allowed to sue. However, if
the vote has already been carried out, responded negative, and the directors acted
anyway, then the court action is possible.

3.0 Just and equitable winding up.

Under S.122 (1) (g) of the insolvency Act 1986 a company may be wound up by the court
if: “the court is of the opinion that is just and equitable that the company should wound up”
Where relations between directors/shareholders have hit the bottom then this is really the
nuclear opinion.
A shareholder is entitled to apply for such a winding up where they have a sufficient interest in
4
the winding up. This means in practice that a fully paid up shareholder must show that there will
be monetary surplus after winding up for distribution amongst the company’s members. There is
also requirement in most instances that shares have been held for at least 18 months (S.124 (2)
b)).
There is no easy definition of what circumstances make it “just and equitable” for a court to wind
up a company. Each case is looked at on its own merits.

3.1 Situations where winding up orders have been made include where:
• A minority shareholder was wrongly excluded from management;

• The majority shareholders have consistently ignored the rights of the minority;

• The directors have awarded themselves excessive remuneration whilst refusing to pay
dividend to shareholders

• There is deadlock within the company and no decisions are capable of being made.

It should be noted that this is a equitable remedy which is in court‘s discretion. This means that
a person seeking the remedy must come to the court with “clean hands”. If they are to partially
the author of their own misfortune as a result of their own actions then the court is much less
likely to assist.

3.2 Under S122 (g) of the Insolvency Act 1986, any shareholder may apply
to have a wound up on just and equitable grounds. There are 2 main
categories which apply here.
• Where the object of the company has failed. (Pirie v/s Stewart)

A company was formed to be shipowners and purchase charter and work ships. The
company’s only ship sank. Pirie with some other shareholders petitioned to have the
company wound up.The court agreed.

• Where the company is formed to carry out a fraud (T E Brinsmead ltd (1847)).

A family company called J Brinsmead was piano makers. There was a family feud and
TEB and his sons left to set up TEB Ltd. There were several issues which arose.
Firstly, the prospectus stated that the business cost $76000, whereas in fact it cost
$60000. The new company was using the name ‘Brinsmead’ to raise this and
shareholders sued the company for fraud.
Secondly, J Brinsmead got an injunction to stop the use of the name ‘Brinsmead’, since
the courts agreed it was a case of passing off.
Finally, minority shareholders petitioned to have the company wound up.

5
4.0 Derivative actions.
Derivative actions are so called since the shareholder’s right to sue derives from the
right of the company.

• Any minority shareholder can sue for an injunction to prevent a proposal act which
would be ultravires the company. This is restricted, however, by the rights of the third
parties, and if the transaction has already been agreed by special resolution.

• Directors may breach heir fiduciary duties to commit fraud on the minority. Fraud here is
widely defined and covers a breach of the duties of care and skill.

• Any altercations to the Articles of a company which are held to not be for the general
good of the company allow for a minority to sue. For example, Brown v/s British Abrasive
Wheel Co Ltd (1919) prevented a 98% majority from force through an amendment which
would allow the majority to have a compulsory right to buy the shares of the minority.

• Majority shareholders can owe duties of good faith; if these are breached then minority
shareholders could sue.

5.0 Injunction (Section 169 of CA).

The minority shareholder may ask for an order to restrain the company or a director who
proposes to engage in a conduct that would contravene the constitution for the Companies Act.

6.0 Personal action (Section 174 of the Co’s Act)

The shareholder may enter a personal action against the:

• Director

• Company

6
7.0 Conclusion.
To conclude oppressed minority shareholder is facing an uphill battle when bringing their claims
in court. However these shareholders must take the above mentioned steps to better protect
themselves. Likewise, they should make sure that their interests are protected to the same
extent as majority shareholders. Moreover, prior to engaging in the venture, minority
shareholder should mandate that there must be an understanding that all company decisions
must be open to all shareholders. Finally minority shareholder must not allow capitalist to play
the bully. If all these are respected, minority shareholder can place themselves in a powerful
position if there is ever a need to bring forth litigation.

Bibliography
• Minority shareholder’s remedie (Cambridge ,CUP, 2002)

• Companies Act 2001&2006

• Company law 2nd edition Simon Goulding, BA, LLM, BARRISTER

Lecturer in law

University of East Anglia

• Ferran Shareholder Remedies :The law Commission report (1998)

• Griggs and Lowry Minority shareholders

7
Remedies: a comparative view (94)