Unfair prejudice – Now what?
Where a shareholder successfully persuades the Court that they have been unfairly prejudiced by the conduct of the other shareholders, the normal remedy from the Court is an order that the aggrieved party should have his, or her, shares purchased by the other shareholders. This of course raises a number of questions.
- At what date should the shareholding be valued?
- Should any valuation allow for the fact that the Company’s value may have been reduced as a consequence of the prejudice – pre-prejudice valuation?
- Should a minority discount be applied?
Generally, the Court will value the Company as at the date of the buy-out order but the Court can value the Company as at another date if the facts of the unfair prejudice requires. An example requiring an alternative ‘pre-prejudice valuation’ date maybe where the other shareholders’, who are often directors also, have awarded themselves significant director’s salaries and bonuses, or mis-directed Company funds or opportunities causing a reduction in the Company’s valuation.
More often than not the Court will apply a discount to the value of a minority shareholding to reflect the fact that the shareholding is non-controlling. Where however the Petitioner is able to persuade the Court that the relationship between the shareholders is a ‘quasi-partnership’ then the Court will not normally apply a discount.