Monday 24 August 2020

UK: England and Wales: unfair prejudice and the removal of directors

Written judgment was delivered today by the Court of Appeal in Loveridge v Loveridge [2020] EWCA Civ 1104. The case centred on allegations of unfair prejudice, under section 994 of the Companies Act 2006, and interim orders that had been granted by the trial judge pending a trial.  Unlike the trial judge, the Court of Appeal found that the petitioning shareholder-director had failed to demonstrate an arguable case under section 994 based on the existence of an equitable constraint on the exercise of legal powers. Such a case had been based, in part, on the petitioner's role as the "driving force" behind the development of various businesses. Lord Justice Floyd observed (paras. [52] and [53]): 

It is not the law that progressive and energetic managers, however well they perform their duties to the benefit of the company, acquire entrenched rights not to be removed from their positions if the constitution of the company permits their removal. Such a principle would act as a significant but unjustified restriction on countless companies with dynamic executives from operating their companies in accordance with their constitutions .... the fact that an individual has had such a role [as 'driving force'] is not a sufficient indication that he is entitled to maintain it in the face of constitutional rules which permit it to be terminated".


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