Sean Ronnan & Anor v Richard Stansfield & Anor

The court considered whether majority shareholders may bring an unfair prejudice petition under s.994 Companies Act 2006 where they retain formal voting control and board control but face practical difficulty in using that control to remedy alleged misconduct by a director. The judge summarised authority (notably Re Legal Costs Negotiators Ltd and Re Baltic Real Estate Ltd (No 2)) that, in the ordinary case, a petitioner who can use majority voting power to end the prejudicial conduct should not bring a s.994 petition; the remedy is for the company itself to sue. The judge held that a majority petitioner seeking relief must establish that it was practically impossible, not merely difficult, to use its corporate powers to obtain the appropriate remedy. Applying those principles, the appeal court found no evidence that it was impossible for the petitioners to cause the company to bring proceedings or obtain injunctive relief, and that the District Judge had been wrong to conclude there was an arguable case of practical powerlessness. The appeal was therefore allowed and the petition struck out.

This was an appeal from an order of DJ Matharu dated 7 August 2024, which had dismissed an application by the first respondent, Mr Stansfield, to strike out a petition under s.994 Companies Act 2006 presented by the majority shareholders, Mr and Mrs Ronnan. The petition alleged serious misconduct by Mr Stansfield, including unauthorised use of a lease, exclusion of the petitioners from company accounts, transfer or use of company assets by a company controlled by the respondent's brother, and closure of the trading premises. The petitioners sought a buy-out based on valuation prior to closure.

Key issues framed by the court:

• whether a majority shareholder with formal control of the company may properly bring a s.994 petition where the alleged misconduct gives rise to practical inability to exercise that control;
• what is the appropriate remedial vehicle where alleged breaches are duties owed to the company;
• whether the District Judge was entitled to find at strike-out/summary judgment stage that the petitioners were arguably powerless.

The court reviewed authority including Re Legal Costs Negotiators Ltd, Re Baltic Real Estate Ltd (No 2) and Cool Seas (Seafoods) Ltd v Interfish Ltd, emphasising that the unfair prejudice jurisdiction is principally intended to protect shareholders who lack the power to stop abusive conduct. The judge explained a four-factor approach: nature of the prejudice; whether the company can in principle take action; whether the petitioner can cause the company to take necessary steps; and the appropriate remedy. The appeal court concluded that where the company can, in principle, bring claims for damages or equitable compensation, and the petitioners can cause it to do so, a s.994 petition by a majority shareholder is inappropriate unless there is persuasive evidence that it was practically impossible for the company to act. On the facts pleaded and the evidence before the court, there was no such evidence of practical impossibility or insolvency and no explanation for the six-month delay in presenting the petition. Accordingly the petition was struck out and the appeal allowed. The court noted the remedy most appropriate in the circumstances was an action by the company for financial compensation.

Appeal allowed. The court held that a s.994 petition by majority shareholders is generally inappropriate where the petitioner can, by virtue of its voting and board majority, cause the company to take steps to remedy the prejudice. A majority petitioner must establish it was practically impossible (not merely difficult) to use its corporate powers to obtain a remedy. On the facts and evidence before the court there was no persuasive case of practical impossibility, and the appropriate remedy was a claim by the company. The petition was therefore struck out.

Appeal from the order of DJ Matharu dated 7 August 2024, which had dismissed the respondent's application to strike out the s.994 petition and for summary judgment on the defence. The present judgment is reported as [2025] EWHC 2034 (Ch).