Sean Ronnan & Anor v Richard Stansfield & Anor

A majority shareholder will generally be unable to maintain an unfair-prejudice petition where corporate control enables the shareholder to end the prejudice or procure appropriate proceedings by the company. The position is stronger where the shareholder also controls the board. An exception may arise where constitutional or contractual arrangements prevent the exercise of control, or where it is practically impossible, rather than merely difficult, for the company to pursue the proper remedy. Where the complaint concerns loss caused to the company by breaches of duty, the company is ordinarily the proper claimant. Section 994 should not become an alternative to a company claim for compensation.

Mr and Mrs Ronnan, majority shareholders and directors of Rumour Bar & Club Ltd, presented a petition under section 994 of the Companies Act 2006 alleging that Mr Stansfield had closed the company’s club, diverted its business and assets to another company, and excluded them from management. They sought a buy-out based on the company’s value before the alleged misconduct.

A District Judge dismissed Mr Stansfield’s strike-out and summary-judgment application, holding that the allegations arguably rendered the majority shareholders powerless in practice. Mr Stansfield appealed. The central issue was whether practical difficulty, without a legal impediment, could justify a majority-shareholder unfair-prejudice petition.

1. Appeal allowed. The petition was struck out.
2. The appropriateness of a majority-shareholder petition depends on: the nature of the prejudice; whether the company can in principle remedy it; whether the petitioner can cause the company to take the necessary steps; and the appropriate remedy.
3. Where the prejudice results from continuing misconduct by a director, the majority can generally remove the director and procure company proceedings. Where the prejudice is permanent damage to the company’s business, a financial claim by the company will ordinarily remain the appropriate remedy. Only in an extreme case, such as complete asset stripping leaving the company without practical ability to sue, might a petition be the only realistic claim.
4. The majority shareholders could have authorised proceedings using their board majority. The evidence did not establish that the company lacked funds, was insolvent, or was practically unable to sue. Uncertainty about the lease, licence or involvement of third parties did not make proceedings practically impossible.
5. The alleged loss was loss suffered by the company, reflected in the value of the shares. The company was therefore the proper claimant. A petition in the shareholders’ own right required persuasive evidence that the company could not bring the claim. No such evidence existed.
6. The general principle reflected in Re Legal Costs Negotiators Ltd and Re Baltic Real Estate Ltd (No 2) was applicable. The exception illustrated by Cool Seas (Seafoods) Ltd v Interfish Ltd, involving reserved matters preventing majority control, did not apply.

• Chancery Appeals, High Court: The appeal against the District Judge’s order dated 7 August 2024 was allowed. The section 994 petition was struck out.
• District Judge: The application to strike out the petition and alternatively for summary judgment was dismissed, on the basis that the pleaded allegations arguably made the majority shareholders powerless in practice.