Can Majority Shareholders be Unfairly Prejudiced?

In Ronnan & Anor v Stansfield & Anor [2025] EWHC 2034 (Ch), decided on 28 July 2025, the England and Wales High Court (Chancery Division) clarified the scope of majority shareholders’ ability to bring unfair prejudice proceedings, offering critical insights for corporate law practitioners.

The case related to the appeal against the First Instance Court’s decision to dismiss an application brought by Mr. Stansfield to strike out the appellants’ unfair prejudice petition under section 994 of the Companies Act 2006, and alternatively for summary judgment of the Respondent’s defence. The strike out was pursued on the basis that the petition disclosed no reasonable grounds for bringing the action or because it amounted to an abuse of process, and the summary judgment on the usual basis that there was no realistic prospect of the court granting the relief sought at trial.

Facts

Mr. and Mrs. Ronnan (“the Ronnans”) and Mr. Stansfield were shareholders and directors of Rumour Bar & Club Limited (“the Company”). The Ronnans owned 55% of the shares of the Company between them and Mr. Stansfield owned 45% of the shares. It was agreed that all three directors would run the business of the Company (“the Club”). The Club was closed abruptly by Mr. Stansfield following a falling out between him and the Ronnans.

In their capacity as the Company’s majority shareholders, the Ronnans issued an unfair prejudice petition alleging the following allegations against Mr. Stansfield:

a. He signed and took the lease in his own name, not on behalf of the Company, without disclosing that fact;

b. He did not fulfil his obligations for the day-to-day running of the business;

c. He threatened to sell the lease and cancel the on-licence if the Ronnans did not pay him £25,000;

d. He closed the club on 3 June 2023 without reference to the Ronnans and then excluded them from any decision-making;

e. Shortly after closure, Mr. Stansfield allowed another company, Truth Nightlife Limited (“Truth”), controlled by his brother, to take possession of the premises and run a similar business;

f. He allowed the Company’s trading accounts to be used for the purchase of chattels for use by Truth, at a cost of between £1,800 and £3,000 per week;

g. He caused the business of the Company and its property (including the lease) to be transferred to or used by Truth without consent of the Ronnans; and

h. He excluded the Ronnans from operation of the Company’s trade cash accounts and a Zettle account.

As a result, it was alleged there had been a breakdown of trust and confidence between the shareholders and that the value of their shares had been reduced. It was also alleged that Mr. Stansfield had taken or was taking all of the Company’s profits and business.

The Ronnans sought an order that their shares in the Company be bought out at fair value. Their case was that they were powerless to stop Mr. Stansfield acting as he did, regardless of any resolution the Company might pass, that he was the only one who had the necessary expertise to run the Club, that he held a sword over their heads by threatening to dispose of the Company’s assets, and that Truth would have continued to operate the business regardless. The Ronnans were majority shareholders and had board control.

The Decision at First Instance

The District Judge agreed with the Ronnans that the facts established an exceptional case and that the Ronnans were powerless to stop Mr. Stansfield. She said that the allegations against Mr. Stansfield and their effect needed to be investigated at trial. Accordingly, she refused to strike out the Ronnans’ unfair prejudice petition.

The Decision of the Court of Appeal

The Court of Appeal (“CoA”) said that it was very unusual for an unfair prejudice petition to be presented by a majority shareholder seeking relief that the minority buy out the shares of the majority. This is because the acts, omissions or conduct that is prejudicial has to be unfairly prejudicial, which generally signifies that the respondent is taking advantage of their ability to control the company’s affairs, at the expense of the petitioner, and that the petitioner cannot otherwise influence what they are doing.

The CoA said that using their majority, the Ronnans could have called a board meeting to authorise legal proceedings in the name of the Company against Mr. Stansfield (and, if appropriate, against his brother and Truth) to restrain the misuse of the lease and the premises. They could also have restrained any surrender of the on-licence or misuse of the Company’s funds. The CoA also observed that the Ronnans could have called a general meeting of the Company and removed Mr. Stansfield as a director.

The CoA said that the appropriateness of an unfair prejudice petition by a majority shareholder depended on four matters:

a. The nature of the prejudice alleged;

b. Whether the company is able in principle to take action to remedy that prejudice;

c. Whether the petitioner can cause the company to take the necessary steps to bring about that remedy; and

d. What the appropriate remedy is.

The CoA said that if the prejudice arises from continuing conduct of the defendant director (e.g. excluding the petitioner and abusing their power as a director), that director can be removed from their position, thereby removing the prejudice. The appropriate remedy is therefore within the control of the petitioner, and a claim for financial compensation for past acts can be brought by the company.

The CoA continued that where the prejudice is permanent harm to the company’s business, as a result of abuse of powers by a director that has come to an end, the prejudice caused will not be remedied by removal of the director. If the company is still afloat, notwithstanding the impugned conduct, it can bring a claim for financial compensation, and the majority shareholders can cause it to do so. In such circumstances, that will be the appropriate remedy and a petition is inappropriate.

In extreme cases, such as stripping the company of all its assets, the business may have been permanently damaged or even destroyed. The company may have no access to its cash reserves, and no practical ability to bring a claim, or be insolvent. In such a case, the Court of Appeal said that a petition may be the only realistic claim.

In the case at hand the CoA acknowledged that by the time of the petition, the prejudicial conduct was in the past, the Company’s assets had been taken from it, and the Club had been supplanted by Truth’s business. It also acknowledged that this was not a case where the prejudice to its shareholders could be remedied by removing Mr. Stansfield as a director because Mr. Stansfield’s ability to continue to deprive the Company of its assets did not depend on his status as a director, but on physical control.

The CoA said that the Ronnans could have caused the Company to start proceedings without delay and that the suggestion that the Company had no money with which to take any such steps was not sufficiently pleaded; it was not established by evidence that it was impossible to bring proceedings, as a result of the alleged prejudicial conduct. The CoA also found that proceedings for damages or equitable compensation could have been brought by the Company at the time that the petition was presented, even if the position was that its business was irrecoverable and the remedy sought was financial.

The CoA was not prepared to accept that all was needed was a legal impediment to the exercise of control to justify a petition by a majority shareholder; a majority shareholder would need to establish that it was practically impossible, not just difficult, for it to use its corporate control to pursue a more appropriate remedy. The CoA said that the proper claimant for the matters alleged was the Company, as the breaches were of duties owed to the Company, and that it was only if the Company could not pursue those claims that the conduct would have unfairly prejudiced the Ronnans as shareholders.

The appeal was accordingly allowed, and the petition was struck out.