In this chapter the work of the Law Commission in respect of reforming the unfair prejudice remedy provided by sections 459–461 of the Companies Act 1985 (with some consequential change to just and equitable winding up under section 122(1)(g) of the Insolvency Act 1986) is explored. The work of the Department of Trade and Industry in its 1998 Consultation Paper is reviewed together with Developing the Framework etc. later recently published by the Company Law Review Steering Group.

The new additional unfair prejudice remedy for smaller companies

The Law Commission's Consultation Paper on shareholder remedies put forward a ‘suggested scheme for a new remedy for smaller companies’. In its basic essentials it would apply to a private company which has a minimum of two and a maximum of five shareholders between whom there was the kind of mutual trust and participation envisaged by Lord Wilberforce in the House of Lords Ebrahimi v. Westbourne Galleries.

Without the usual burden in a section 459 petition of establishing unfair prejudice, the petitioner in the envisaged procedure could apply to the court for an order on the grounds of exclusion from participation in management (or removal as a director). The petitioner would be entitled to such an order unless the respondent could establish gross misconduct on the petitioner's part. In this proposed procedure the remedy available is restricted to an order for the purchase of the petitioner's shares by other members or by the company itself.