Wednesday 8 October 2008

UK: England and Wales: bonus payments, dividends and unfair prejudice

In Hecquet v McCarthy [2008] EWHC 2279 (Ch) it was argued before the High Court that various bonus payments, and the non-payment of dividends, were unfairly prejudicial under (what is now) Section 994 of the Companies Act (2006) (the unfair prejudice remedy). Such claims are not that unusual under the unfair prejudice remedy but the trial judge's decision is interesting because of the comments made regarding the payment of dividends. 

In finding the bonus payments to be unfairly prejudicial, the trial judge observed that they represented an attempt to prevent the shareholders receiving the benefits of a lucrative contract. His Lordship also held that the bonus payments breached the director's duty to act fairly between shareholders and that the board's failure to consider paying dividends was also a breach of duty. With regard to the latter, the judge observed (para. [84]):

"This is not a case where the board has bona fide decided not to declare dividends in the best interests of the Company. It is a case where the board has consistently failed to consider whether or not to declare dividends, and that must be a breach of duty".

Note: the decision has not yet been posted on BAILII (if it does appear, this post will be updated).

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