Is there a limitation period applicable to a petition under Section 994 of the Companies Act 2006 and, if so, what is it?

What is an Unfair Prejudice Petition?

A member of a company is able to present a petition alleging unfair prejudice under S994 of the Companies Act 2006 (the “Act”).  A member can apply in circumstances where (a) the company's affairs are being or have been conducted in a manner that is unfairly prejudicial to the interests of members generally or of some part of its members (including at least himself); or (b) that an actual or proposed act or omission of the company (including an act or omission on its behalf) is or would be so prejudicial.  If a court is satisfied that such a petition is well founded, it may make such order as it thinks fit for giving relief in respect of the matters complained of.

Background

Zedra Trust Company (Jersey) Limited (the appellant) was a minority shareholder in THG PLC (the respondent).

In July 2016, the respondent allotted shares to four corporate shareholders with shares of the same class as those held by the appellant, but none to Zedra. In 2019, the appellant initiated a claim against the respondent arising out of this share issue by presenting a petition.

In June 2022, the appellant applied to add an additional claim that it suffered unfair prejudice under section 994 of the Companies Act 2006 as it had been excluded from the share issue. The re-amended petition, alleges that the directors were in breach of their statutory duty to act lawfully, in good faith for proper purposes and fairly as between different shareholders when exercising the power to allot shares and the power to capitalise profits and appropriate the capitalised profits to shareholders. There is a specific allegation that the directors acted "in bad faith and/or for improper purposes in order to prejudice Zedra's interest as a minority shareholder". The petition goes on to allege that the effect of that exclusion was to dilute Zedra's shareholding. Accordingly, the petition alleges, Zedra lost the right to additional shares which it would have sold. The loss to Zedra is therefore said to be the additional amount which it would have realised on the flotation of THG in September 2020. The principal claim for relief is for an order that the relevant directors pay equitable compensation to Zedra to redress that loss.

The Litigation So Far

In December 2022, the High Court of Justice of England and Wales allowed the appellant’s application. It rejected the respondent’s contention that the additional claim was time barred under the Limitation Act 1980.

The respondent appealed to the Court of Appeal, which allowed the appeal and held that they were not bound by the ratio of the earlier Court of Appeal decision in Bailey v Cherry Hill Skip Hire Ltd [2022] EWCA Civ 531 and that contrary to “over 40 years’ received wisdom”, limitation periods do apply to unfair prejudice petitions under section 994 of the Companies Act 2006.   It concluded that the additional claim was time barred under the Limitation Act 1980.

The limitation period is 12 years under section 8 of the Limitation Act 1980, unless the claim is one for compensation or monetary relief where the limitation period is 6 years under section 9 of the Limitation Act 1980.  The Court of Appeal also held that the provisions of section 35 of the Limitation Act 1980 and CPR 17.4 apply to applications to amend an unfair prejudice petition.

The appellant now appeals to the Supreme Court of the United Kingdom.

The Supreme Court has listed this case for appeal on 17 February 2025.

What impact does this ruling have?

This decision became a landmark case in shareholder disputes as it demonstrated the impact shareholder disagreements can have on corporate entities.  Furthermore, it challenged 40yrs of legal precedent to decide that unfair prejudice petitions are subject to limitations under the Limitation Act 1980.

There is a strong public policy against the raising of stale claims so it will be interesting to see how the Supreme Court deal with the appeal.  Nonetheless the case reminds us that it is always best to take swift action if you, as a shareholder, consider that you have been unfairly prejudiced especially in circumstances where you may be seeking monetary compensation. 

If you'd like assistance in relation to the issues raised please do contact Erica Simpson at esimpson@ortolan.com