UK: England and Wales: unfair prejudice, the reasonable offer and equal shareholders

In O'Neill v Phillips [1999] 1 WLR 1092, Lord Hoffmann set out, in obiter dicta, the effect of a reasonable offer for the petitioner's shares in the context of petitions under what is now Section 994 of the Companies Act (2006). His Lordship observed that where a petitioning shareholder had been excluded, such exclusion would not be unfairly prejudicial where a reasonable offer had been made for his shares. In such a case, the respondent would be entitled to have the petition struck out. Lord Hoffmann also explained what would constitute a reasonable offer.

A useful reminder about the status of Lord Hoffmann's dicta has recently been provided by the High Court in Harborne Road Nominees Ltd. v Karvaski [2011] EWHC 2214 (Ch). In the view of the trial judge, HHJ David Cooke, Lord Hoffmann's guidance "does not have the status of legislation ... The question for the court is always whether in all the circumstances of the case the applicant has satisfied the conditions required to have the petition struck out, or summary judgment in his favour given on it ... The issue is highly sensitive to the facts and circumstances of each case, and consideration of the nature and terms of any offer made can only ever be an intermediate step in the process" (para. [26]).

HHJ Cooke proceeded to state that Lord Hoffmann's remarks were not intended, in the context of a dispute between equal shareholders, to establish a mechanism for seizure and exclusion by one of those shareholders. Indeed, he stated that there would be the clear potential for injustice if an equal shareholder was able to seize de facto control and effectively force the other shareholder to accept his offer or be forever excluded from participating in the affairs of the company. He further considered the significance of alleged breaches of directors' duties for deciding whether a petition should be struck out where an offer had been made.