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Repent while you can: Weatherley v Weatherley

The recent English case of Weatherley v Weatherley demonstrates that, even if unfairly prejudicial conduct has occurred, if the directors have remedied the prejudice, no claim will lie. In a small family company previously managed by the parents and two children, the eldest child who worked as managing director of the company, died suddenly.

Following his death, the directors amended the company’s articles to prevent the transfer of their son’s shares bequeathed to his wife. The widow brought an unfair prejudice claim against the company. Before trial, the directors remedied the actions complained of and transferred the bequeathed shares to the widow and paid all dividends accruing on the shares.

Mr Justice Briggs emphasised the following principles:

  • The unfairly prejudicial conduct complained of must be acts of the company and not of the shareholders.
  • To satisfy the test of unfair prejudice, the acts or omissions complained of must be unfair and prejudicial.
  • Unfairness is a notion, not to be considered in a vacuum, but made against the legal background of the corporate structure being considered.
  • The conduct need not be unlawful but the conduct must be inequitable i.e. using rules in a manner that equity would regard as contrary to good faith.
  • Prejudice is not a narrow concept. It may be in the form of an economic or non economic act or omission.
  • Fairness is contextual, “flexible and open textured”. It may require that you consider what was orally agreed rather than what was written in the company’s articles.
  • Where the company has taken steps to remedy the unfairness in such a way that the conduct cannot recur, the statute cannot be invoked to seek relief.
  • In a small company, even where there are no formal written resolutions to authorise an act, those actions remain valid by operation of the informal unanimous rule. This rule allows formalities to be disregarded where the shareholders acting in concert have waived the formality requirement in order to get the same substantial result. Each shareholder merely needs to have full knowledge that his assent is required and sought.

Under BVI law, locus for presenting an unfair prejudice claim will only be conferred on someone whose name has been entered on the register of members. It does not include a person who obtained shares by operation of law but their name is not yet entered on the register of members.

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