The Court of Appeal (‘CoA’) handed down its judgment on 20th May 2015 in the case of Arbuthnott v Bonnyman and others (in the Matter of Charterhouse Capital Limited) (on appeal from Asplin J: [2014] EWHC 1410 (Ch)).

The Court rejected the contention that the acquisition of a minority shareholder’s shares in a private limited company by the majority of members amounted to unlawful expropriation and unfairly prejudicial conduct contrary to section 994(1) Companies Act 2006 (‘CA 2006’). 

In a unanimous, robust and resolute judgment swiftly handed down following a three day hearing in late April 2015, the CoA has emphasised that a member of a company will not normally be entitled to complain that the conduct of the company’s affairs is unfair if it is consistent with the agreement between the shareholders as to the way in which those affairs would be conducted as reflected in the articles of association and any related agreements between the shareholders. 

In this case, concerning Charterhouse Capital Limited (the ‘Company’), there was extensive debate about the nature of such existing provisions: whether they permitted the majority shareholders (acting through the Company) to acquire all of the shares in the Company themselves, or whether amendments made by the majority to those provisions fundamentally changed the nature of the agreement which the shareholders had originally made, and introduced an unlawful power of expropriation.

The CoA confirmed the finding at first instance that the acquisition of the shares in the Company by the majority of members was in accordance with and contemplated by the original commercial bargain struck between the shareholders, notwithstanding an amendment made by the majority to the Company’s articles of association (the “Articles”) in the course of implementing the acquisition.  It was not now open to the minority shareholder through the s. 994 CA 2006 regime to seek to rewrite that bargain to achieve a new deal.

Minority protection and protection from the minority

The statutory regime of s.994 CA 2006 and the common law rules on amendments to articles of association afford a valuable mechanism through which a minority shareholder’s rights may be protected.  It is right that the courts should prevent a majority of shareholders from using their collective voting power to override a minority to its detriment.

However, it is equally right that the courts should hold shareholders to their commercial bargains and should prevent them from seeking to use the mechanism subsequently to redefine their commercial relationship with the majority shareholders.  To permit them to do so would be to turn the mechanism from a shield into a sword, and would place them in a far better position than the majority which, by definition, is an unattractive proposition.

Commercial reality and commercial common sense

Unfair prejudice petitions are, by their very nature, highly fact-dependent, and much will turn upon the specific actions of the various individuals involved.  However, in a controversial area of law, this is a sensible, firm and realistic judgment which provides welcome clarity to the law of minority shareholder rights.  It reflects and promotes commercial reality and commercial common sense, and it recognises that it is not always the minority shareholder at the hands of the majority that the law and the courts must protect, but sometimes the opposite.