An institutional analysis of UK ostensible minority shareholder protection mechanisms

ABSTRACT

This article argues that there is a conundrum at the heart of the company law understanding of ostensible minority protection mechanisms (the derivative claim and unfair prejudice): they are terrible at protecting those that they are thought to protect. The hurdles to access the remedies are too high, there is undue focus on the behaviour of the wronged party, costs are uncertain, and relief inadequate. This conundrum can be resolved by applying an institutional analysis and exploring the rules from the perspective of the company. Here, a number apparent weaknesses in the regime are mostly strengths for the company. The remedies are important for the company as they act as a ‘lightning rod’: all complaints by disgruntled shareholders are funnelled through these hegemonic argumentation structures, which protect the institutional arrangement of the company and, in turn, that part of the institutional environment which is company law.

KEYWORDS:

• Minority protection
• unfair prejudice
• derivative claim

Acknowledgements

The author is privileged to have received valuable input on the ideas advanced in this article from Prof Eva Micheler, Dr David Gindis, Prof David Cabrelli, Prof Luca Enriques, the anonymous reviewers, and all participants at the LSE Systemic Risk Centre conference on the Institutional Theory of the Firm held on 16 and 17 June 2022. All errors and omissions remain the sole responsibility of the author.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 See G Teubner, ‘Enterprise Corporatism: New Industrial Policy and the “Essence” of the Legal Person’ (1988) 36 American Journal Comparative Law 130.

2 For discussion of the nature of a shareholder’s interest, see P Ireland, ‘Company Law and the Myth of Shareholder Ownership’ (1999) 62 Modern Law Review 32; RB Grantham, ‘The Doctrinal Basis of the Rights of Company Shareholders’ (1998) 57 Cambridge Law Journal 554; RR Pennington, ‘Can Shares in Companies be Defined?’ (1989) 10 Company Lawyer 140; S Worthington, ‘Shares and Shareholders: Property, Power and Entitlement’ (2001) 22 Company Lawyer 258.

3 SM Watson, ‘The Significance of the Source of the Powers of Boards of Directors in UK Company Law’ [2011] Journal of Business Law 597. See also AA Berle and G Means, The Modern Corporation and Private Property (revised edition, Harcourt, Brace & World, Inc. 1967) 67, which argues that a loss of control is inherent in any aggregation of capital. See SM Bainbridge, ‘Director Primacy and Shareholder Disempowerment’ (2006) 119 Harvard Law Review 1735.

4 Requiring unanimity of shareholder decisions is impractical – see M Eisenberg, The Structure of the Corporation: A Legal Analysis (Beard Books 1967) 16; FH Easterbrook and DRR Fischel, The Economic Structure of Corporate Law (Harvard University Press 1991) 248, and risks minority shareholders holding out for inefficient requests – see BR Cheffins, Company Law Theory, Structure and Operation (reprint, OUP 2007) 68–69.

5 See the Model Articles contained in The Companies (Model Articles) Regulations 2008 (SI 2008/3229), Sch 1 para 3. These appear to be rarely deviated from in practice, at least for smaller companies – see J Hardman, ‘Articles of Association in UK Private Companies: An Empirical Leximetric Study’ (2021) 22 European Business Organization Law Review 517.

6 Companies Act 2006, ss 281–283.

7 This is often couched in language which means that shareholders can collectively act to discipline management in their joint interests – eg LA Bebchuk, ‘The Case for Increasing Shareholder Power’ (2005) 118 Harvard Law Review 833, 883–86 (arguing that concerns in respect of shareholder special interests, short term horizons, and opportunism are not significant); BS Black, ‘Shareholder Passivity Reexamined’ (1990) 89 Michigan Law Review 520, 608 (arguing that shareholders can overcome collective action problems); SJ Schwab and RS Thomas, ‘Realigning Corporate Governance: Shareholder Activism by Labour Unions’ (1998) 96 Michigan Law Review 1018, 1083–85 (arguing that shareholders are rational and will act to maximise the recovery of the overall company, which in turn will maximise their return).

8 At the very least, it has been argued that on key matters shareholders’ interests are homogenous, but they may need some protection – see BR Cheffins, Company Law Theory, Structure and Operation (reprint, OUP 2007) 68–69.

9 I Anabtawi, ‘Some Skepticism about Increasing Shareholder Power’ (2006) 53 UCLA Law Review 561.

10 See J Hardman, ‘The Plight of the UK Private Company Minority Shareholder’ (2022) 33 European Business Law Review 87.

11 See MC Jensen and JB Warner, ‘The Distribution of Power among Corporate Managers, Shareholders and Directors’ (1988) 20 Journal of Financial Economics 3; AR Admati and P Pfleiderer, ‘The “Wall Street Walk” and Shareholder Activism: Exit as a form of Voice’ (2009) 22 The Review of Financial Studies 2645.

12 AO Hirschmann, Exit, Voice and Loyalty: Responses to Decline in Firms, Organisations and States (Harvard University Press 1970); BA Korman, ‘The Corporate Game of Thrones and the Market for Corporate Control’ (2017) 12 Journal of Business & Technology Law 165; BS Sharfman and MT Moore, ‘Liberating the Market for Corporate Control’ (2021) 18 Berkeley Business Law Journal 1.

13 HG Manne, ‘Some Theoretical Aspects of Shareholder Voting: An Essay in Honor of Adolfe A Berle’ (1964) 64 Columbia Law Review 1427; HG Manne, ‘Mergers and the Market for Corporate Control’ (1965) 73 Journal of Political Economy 110; FS McChesney, ‘Manne, Mergers, and the Market for Corporate Control’ (1999) 50 Case Western Reserve Law Review 245.

14 Of course, this can be overstated – wrongful behaviour does occur, and so it is perhaps more accurate to say that this mitigates bad behaviour, along with other disciplinary markets such as the intra-firm labour market – see EF Fama, ‘Agency Problems and the Theory of the Firm’ (1980) 88 Journal of Political Economy 288.

15 JAC Hetherington and MP Dooley, ‘Illiquidity and Exploitation: A Proposed Statutory Solution to the Remaining Close Corporation Problem’ (1977) 63 Virginia Law Review 1; EB Rock and ML Wachter, ‘Waiting for the Omlette to Set: Match-Specific Assets and Minority Oppression’ in RK Morck (ed), Concentrated Corporate Ownership (University of Chicago Press 2000).

16 See discussion in DD Prentice, ‘The Theory of the Firm: Minority Shareholder Oppression: Sections 459–461 of the Companies Act 1985’ (1988) 8 Oxford Journal of Legal Studies 55, 64.

17 This is supported by mechanics requiring disclosure of information to the market – see discussion in RJ Gilson and RH Kraakman, ‘The Mechanisms of Market Efficiency’ (1984) 70 Virginia Law Review 549.

18 C Loderer and U Waelchli, ‘Protecting Minority Shareholders: Listed versus Unlisted Firms’ (2010) 39 Financial Management 33. Any market that there is will be monopsonistic – see DD Prentice, ‘The Closely-Held Company and Minority Oppression’ (1983) 3 Oxford Journal of Legal Studies 417.

19 See A Barak, ‘A Comparative Look at Protection of the Shareholders’ Interest Variations on the Derivative Suit’ (1971) 20 International and Comparative Law Quarterly 22; EW Orts, ‘Shirking and Sharking: A Legal Theory of the Firm’ (1998) Yale Law & Policy Review 265, 318; RB Thompson, ‘The Shareholder’s Cause of Action for Oppression’ (1993) 48 The Business Lawyer 699.

20 Eg FH Easterbrook and DRR Fischel, ‘Close Corporations and Agency Costs’ (1985) 38 Stanford Law Review 271.

21 Normally linked to the residual claim – eg EF Fama and MC Jensen, ‘Agency Problems and Residual Claims’ (1983) 26 Journal of Law and Economics 327.

22 MC Jensen and WH Meckling, ‘Theory of the Firm: Managerial Behaviour, Agency Costs, and Ownership Structure’ (1976) 3 Journal of Financial Economics 305; R Kraakman and others, The Anatomy of Corporate Law (3rd edn, OUP 2017) 29–31.

23 For example by excessive compensation – see mechanics in LA Bebchuk and JM Fried, ‘Executive Compensation as an Agency Problem’ (2003) 17 Journal of Economic Perspectives 71.

24 Sometimes called ‘horizontal’ agency costs – JC Coffee and others, ‘Activist Directors and Agency Costs: What Happens When an Activist Director Goes on the Board?’ (2019) 104 Cornell Law Review 381; SM Sepe, ‘Corporate Agency Problems and Dequity Contracts’ (2010) 36 Journal of Corporation Law 113; RP Bartlett III, ‘Venture Capital, Agency Costs, and the False Dichotomy of the Corporation’ (2006) 54 UCLA Law Review 37.

25 Eg R Dharwadkar, G George and P Brandes, ‘Privatization in Emerging Economies: An Agency Theory Perspective’ (2000) 25 Academy of Management Review 650; MN Young and others, ‘Corporate Governance in Emerging Economies: A Review of the Principal-Principal Perspective’ (2008) 45 Journal of Management Studies 196.

26 Eg see K Arrow, ‘The Economics of Agency’ in JW Pratt and RJ Zeckhauser (eds), Principals and Agents: The Structure of Business (Harvard Business School Press 1984). As a result, then, all agency relationships are inextricably reciprocal – see JW Pratt and RJ Zeckhauser, ‘Principals and Agents: An Overview’ in JW Pratt and RJ Zeckhauser (eds), Principals and Agents: The Structure of Business (Harvard Business School Press 1984); S Jeon, ‘Reciprocal Agency’ (2001) Journal of Institutional and Theoretical Economics 246.

27 BR Cheffins, Company Law Theory, Structure and Operation (reprint, OUP 2007) 68–69; CD Israels, ‘Close Corporations and the Law’ (1948) 33 Cornell Law Review 488.

28 Eg J Armour, ‘Enforcement Strategies in UK Corporate Governance’ in J Armour and J Payne (eds), Rationality in Company Law: Essays in Honour of DD Prentice (Hart 2009) 79; S Worthington and S Angew, Sealy & Worthington’s Text, Cases & Materials in Company Law (12th edn, OUP 2022) 490–590; B Hannigan, Company Law (6th edn, OUP 2021) paras 19-9–19-13. See also Sevilleja v Marex Financial Ltd [2020] UKSC 31 at paras [36], [81] and [83] per Lord Reed.

29 Companies Act 2006, Part 11.

30 Companies Act 2006, Part 30.

31 Not only over the articles of association, but also in respect of removing directors – Companies Act 2006, s 168.

32 Eg in respect of unfair prejudice, Prentice states, ‘[t]he phrase “minority shareholder oppression” is not being used in any technical sense, but broadly to denote a situation where the right or expectations of a shareholder (whether or not a minority shareholder) have been transgressed’ – DD Prentice, ‘The Theory of the Firm: Minority Shareholder Oppression: Sections 459–461 of the Companies Act 1985’ (1988) 8 Oxford Journal of Legal Studies 55, 55.

33 Insolvency Act 1986, s 122(1)(g).

34 This can be to group the three remedies together – eg L Roach, Company Law (2nd edn, OUP 2022) 392 – or as part of a wider list of remedies, including the Secretary of State’s powers to investigate the company – eg J Dine and M Koutsias, Company Law (9th edn, Palgrave 2020) ch 10; D French, Mayson, French & Ryan on Company Law (37th edn, OUP 2021) ch 18.

35 It also exists as ‘a remedy for paralysis’ – see Chu v Lau [2020] UKPC 24 at para [17] per Lord Briggs.

36 This makes it an insolvency remedy rather than a company law remedy, as the effect is to appoint a liquidator – see Insolvency Act 1986, s 130.

37 Winding the company up remains an optional remedy for the court when faced with an unfair prejudice remedy.

38 See J Armour, ‘Derivative Actions: A Framework for Decisions’ (2019) 135 Law Quarterly Review 412; A Keay, ‘Assessing and Rethinking the Statutory Scheme for Derivative Actions under the Companies Act 2006’ (2016) 16 Journal of Corporate Law Studies 39.

39 For the line between the two, see B Hannigan, ‘Drawing Boundaries between Derivative Claims and Unfairly Prejudicial Petitions’ [2009] Journal of Business Law 606.

40 They provide ‘a much more comprehensive form of protection for shareholders’ – PL Davies, S Worthington and C Hare, Gower Principles of Modern Company Law (11th edn, Sweet & Maxwell 2021) para 14-012.

41 See Hurstwood Properties (A) Ltd v Rossendale Borough Council [2021] UKSC 16.

42 See discussion in J Hardman, ‘Fixing the Misalignment of the Concession of Corporate Legal Personality’ (2023) 43 Legal Studies 443, 454–57.

43 D Kennedy, The Dark Sides of Virtue: Reassessing International Humanitarianism (Princeton University Press 2004).

44 Set out most clearly in FH Easterbrook and DRR Fischel, ‘The Corporate Contract’ (1989) 89 Columbia Law Review 1416.

45 M Klausner, ‘The Contractarian Theory of Corporate Law: A Generation Later’ (2006) 31 Journal of Corporation Law 779; MA Eisenberg, ‘The Conception that the Corporation is a Nexus of Contracts, and the Dual Nature of the Firm’ (1999) 24 Journal of Corporation Law 819; LA Bebchuk, ‘Limiting Contractual Freedom in Corporate Law: The Desirable Constraints on Charter Amendments’ (1989) 102 Harvard Law Review 1820; LA Bebchuk and A Hamdani, ‘Optimal Defaults for Corporate Law Evolution’ (2002) 96 Northwestern University Law Review 489.

46 MT Moore, ‘Private Ordering and Public Policy: The Paradoxical Foundations of Corporate Contractarianism’ (2014) 34 Oxford Journal of Legal Studies 693; D Attenborough, ‘Empirical Insights into Corporate Contractarian Theory’ (2017) 37 Legal Studies 191; D Gibbs-Kneller, D Gindis and D Whayman, ‘Not by Contract Alone: The Contractarian Theory of the Corporation and the Paradox of Implied Terms’ (2022) 23 European Business Organization Law Review 573.

47 See R Kraakman and others, The Anatomy of Corporate Law (3rd edn, OUP 2017) ch 1 and ch 2. For the arguments as to how and why, see JW Pratt and RJ Zeckhauser, ‘Principals and Agents: an Overview’ in JW Pratt and RJ Zeckhauser (eds), Principles and Agents: The Structure of Business (Harvard Business School Press 1985).

48 J Hardman, ‘The Plight of the UK Private Company Minority Shareholder’ (2022) 33 European Business Law Review 87.

49 Foss v Harbottle (1843) 2 Hare 461; KW Wedderburn, ‘Shareholders’ Rights and the Rule in Foss v Harbottle’ (1957) 15 Cambridge Law Journal 194.

50 Edwards v Halliwell [1950] 2 All ER 1064, 1066–1069; Prudential Assurance Co Ltd v Newman Industries Ltd (No 2) [1982] Ch 204, 210–211. For an overview of the common law position, see Editorial, ‘A Statutory Derivative Action’ (2007) 28 Company Lawyer 225.

51 Constituted in the Companies Act 2006 – see A Reisberg, ‘Derivative Claims under the Companies Act 2006: Much Ado about Nothing?’ in J Armour and J Payne (eds), Rationality in Company Law: Essays in Honour of DD Prentice (Hart 2009). The extent to which the statutory process represents a fundamental replacement of the common law regime with something entirely novel, or whether it merely codifies and continues the common law regime is moot. Compare J Armour, ‘Derivative Actions: A Framework for Decisions’ (2019) 135 Law Quarterly Review 412, 413 with D Kershaw, ‘The Rule in Foss v Harbottle is Dead: Long Live the Rule in Foss v Harbottle’ [2015] Journal of Business Law 274.

52 Companies Act 2006, s 260(1).

53 On the grounds that the majority have other rights available to them – see discussion in PL Davies, S Worthington and C Hare, Gower Principles of Modern Company Law (11th edn, Sweet & Maxwell 2021) para 15-005.

54 Companies Act 2006, s 260(3).

55 PL Davies, S Worthington and C Hare, Gower Principles of Modern Company Law (11th edn, Sweet & Maxwell 2021) para 15-009.

56 Companies act 2006, s 260(3).

57 A Keay and J Loughrey, ‘Something Old, Something New, Something Borrowed: An Analysis of the New Derivative Action Under the Companies Act 2006’ (2008) 124 Law Quarterly Review 469.

58 Companies Act 2006, s 261. A member of a company can also apply for permission to continue a claim already brought by the company – see Companies Act 2006, s 262 – and by other members – see Companies Act 2006, s 264. These fill important ‘gap filling’ roles, as they stop claims being raised by the company then settled or dropped, leaving no space for a derivative claim to arise.

59 Companies Act 2006, s 263(2)(a); A Keay, ‘Applications to Continue Derivative Proceedings on Behalf of Companies and the Hypothetical Director Test’ (2015) 34 Civil Justice Quarterly 346.

60 Companies Act 2006, s 263(2)(b). There are ex ante rules which prevent a director voting on matters in their own interest – such as declarations of interests in proposed transactions to the other directors – Companies Act 2006, see ss 177 and 182. These can be supplemented by shareholders under the constitution to exert more control over directors conflicts – see PL Davies, S Worthington and C Hare, Gower Principles of Modern Company Law (11th edn, Sweet & Maxwell 2021) para 10-062.

61 Companies Act 2006, s 263(2)(c). There are ex post rules which prevent a directly interested director or any member of the company directly connected to her from voting on any ratification of a wrong act – see Companies Act 2006, s 239, discussed in C Riley, ‘Derivative Claims and Ratification: Time to Ditch Some Baggage’ (2014) 34 Legal Studies 582.

62 See Companies Act 2006, s 263. The presence of an alternative remedy does not automatically preclude utilising derivative claims – see EC Mujih, ‘The New Statutory Derivative Claim: A Paradox of Minority Shareholder Protection: Part 2’ (2012) 33 Company Lawyer 99.

63 Companies Act 2006, s 263(4).

64 Wallersteiner v Moir (No. 2) [1975] QB 373 CA; A Reisberg, ‘Derivative Actions and the Funding Problem: The Way Forward’ [2006] Journal of Business Law 445.

65 ‘It seems to me that court can be properly concerned that in a dispute between shareholders, an indemnity given by the company to one side or the other gives an unfair advantage to that side’ – Hook v Sumner [2015] EWHC 3820 (Ch), para [139].

66 See Cullen Investments Ltd v Brown [2015] EWHC 473 (Ch), where it was held that since the minority shareholder rather than the company ‘will be liable for the adverse costs consequences in the event of failure, it is difficult to see any reason why a hypothetical director would not want to continue the litigation. Its funds cannot be diminished but may very well be enhanced, possibly to a very significant extent’ para [55].

67 A Reisberg, ‘Shareholders’ Remedies: The Choice of Objectives and Social Meaning of Derivative Actions’ (2005) 6 European Business Organization Law Review 227, 233.

68 J Armour, ‘Derivative Actions: A Framework for Decisions’ (2019) 135 Law Quarterly Review 412, 436.

69 A Reisberg, ‘Shareholders’ Remedies: The Choice of Objectives and Social Meaning of Derivative Actions’ (2005) 6 European Business Organization Law Review 227, 249–52; OC Schreiner, ‘The Shareholder’s Derivative Action – A Comparative Study of Procedures’ (1979) 96 South African Law Journal 203, 211; SJ Choi, J Erickson and AC Pritchard, ‘Piling on? An Empirical Study of Parallel Derivative Suits’ (2017) 14 Journal of Empirical Legal Studies 653.

70 By providing additional disciplinary mechanisms where they may be lacking, thus disincentivising agency costs becoming manifested.

71 M Almadani, ‘Derivative Actions: Does the Companies Act 2006 Offer a Way Forward?’ (2009) 30 Company Lawyer 131.

72 See D Arsalidou, ‘Litigation Culture and the New Statutory Derivative Claim’ (2009) 30 Company Lawyer 205.

73 M Gelter, ‘Preliminary Procedures in Shareholder Derivative Litigation: A Beneficial Legal Transplant?’ (2022) 19 European Company and Financial Law Review 3.

74 See G Zouridakis, ‘Introducing Derivative Actions to the Greek Law on Public Limited Companies: Issues of Legal Standing and Lessons from the German and UK Experience’ (2015) 26 International Company and Commercial Law Review 271; MP Richard, ‘Re-Examining the Basis of Derivative Action in Nigeria: the Need for Reforms’ (2017) 28 International Company and Commercial Law Review 54; SH Goo, CK Low and P von Nessen ‘The Statutory Derivative Action: Now Showing Near You’ [2008] Journal of Business Law 627; Z Zhao, ‘A More Efficient Derivative Action System in China: Challenges and Opportunities through Corporate Governance Theory’ (2013) 64 Northern Ireland Law Quarterly 233.

75 A Hudson, ‘BHS and the Reform of Company Law’ (2016) 37 Company Lawyer 364.

76 N Safari and M Gelter, ‘British Home Stores Collapse: The Case for an Employee Derivative Claim’ (2019) 19 Journal of Corporate Law Studies 43.

77 Companies Act 2006, s 994.

78 See B Hannigan, ‘Drawing Boundaries between Derivative Claims and Unfairly Prejudicial Petitions’ [2009] Journal of Business Law 606.

79 Report of the Committee on Company Law Amendment 1945 (Cmd. 6659) para 60.

80 Companies Act 1948, s 210.

81 This was primarily due to the complex interaction with the company’s constitution and that the remedy was only available if the court could wind the company up, but the facts meant an alternative remedy should be preferred (Companies Act 1948, s 210(2)(b)). See discussion in H Rajak, ‘The Oppression of Minority Shareholders’ (1972) 35 Modern Law Review 156; KW Wedderburn, ‘Oppression of Minority Shareholders’ (1966) 26 Modern Law Review 321; LS Sealy, ‘Company Law – Protection of Minority Shareholders’ (1976) 35 Cambridge Law Journal 235.

82 C Riley, ‘Contracting Out of Company Law: Section 459 of the Companies Act 1985 and the Role of the Courts’ (1992) 55 Modern Law Review 782, 792.

83 Companies Act 1985, s 459(1).

84 DD Prentice, ‘The Theory of the Firm: Minority Shareholder Oppression: Sections 459–461 of the Companies Act 1985’ (1988) 8 Oxford Journal of Legal Studies 55, 91.

85 DD Prentice, ‘Protecting Minority Shareholder Interests: Recent Developments with Respect of Sections 459–461 of the Companies Act 1985’, in D Feldman and F Meisel (eds), Corporate and Commercial Law: Modern Developments (Lloyds of London 1996) 79. For judicial exposition, see Re A Company (No. 00314 of 1989) [1990] BCC 221.

86 R Goddard, ‘Taming the Unfair Prejudice Remedy: Sections 459–461 of the Companies Act 1985 in the House of Lords’ (1999) 58 Cambridge Law Journal 487.

87 O’Neill v Phillips [1999] 1 WLR 1092.

88 O’Neill v Phillips [1999] 1 WLR 1092, 1101.

89 O’Neill v Phillips [1999] 1 WLR 1092, 1101.

90 BR Cheffins, ‘An Economic Analysis of the Oppression Remedy: Working towards a More Coherent Picture of Corporate Law’ (1990) 40 University of Toronto Law Journal 775, 812.

91 O’Neill v Phillips [1999] 1 WLR 1092, 1107.

92 J Payne and DD Prentice, ‘Section 459 of the Companies Act 1984 – the House of Lords’ View’ (1999) 115 Law Quarterly Review 587, 590.

93 J Payne, ‘Sections 459–461 Companies Act 1985 in Flux: the Future of Shareholder Protection’ (2005) 64 Cambridge Law Journal 647. This is not inevitable and other jurisdictions navigate the divide between corporate remedy and personal remedy – see P Koh, ‘The Oppression Remedy – Clarifications on Boundaries’ (2015) 15 Journal of Corporate Law Studies 407.

94 See R Goddard, ‘The Unfair Prejudice Remedy’ (2008) 12 Edinburgh Law Review 93.

95 Companies Act 2006, s 994. This now includes someone to whom shares have been transferred – s 994(2). Private action by another shareholder can also trigger the regime, but only to the extent that this can be adequately linked to the conduct of the company – eg Re Kings Solutions Group Ltd [2021] EWCA Civ 1943.

96 Companies Act 2006, s 996(1).

97 Re Annacott Holdings Ltd [2012] EWCA Civ 998. See E Lim, ‘Unfair Prejudice and Judicial Ingenuity’ (2013) 34 Company Lawyer 115.

98 O’Neill v Phillips [1999] 1 WLR 1092, 1105.

99 O’Neill v Phillips [1999] 1 WLR 1092, 1106–1109.

100 McGuiness v Bremner plc 1988 SLT 891.

101 Re AMT Coffee Ltd [2019] EWHC 46 (Ch).

102 Fowler v Gruber [2010] 1 BCLC 563, [183]-[187].

103 Re Cumana [1986] BCLC 430.

104 Whyte, Petitioner (1984) 1 BCC 99044.

105 Companies Act 2006, s 994.

106 ‘Controlling shareholders are not in terms excluded from using the section, although normally any prejudice they suffer will be remediable through the use of the ordinary powers they possess by virtue of their controlling position, and so the conduct of the minority cannot be said in such a case to be unfairly prejudicial to the controllers. Section 994 thus operates primarily as a mechanism for minority protection’ – PL Davies, S Worthington and C Hare, Gower Principles of Modern Company Law (11th edn, Sweet & Maxwell 2021) para 14-012.

107 Eg to remove directors – Companies Act 2006, s 168 – and thus shape the board in a manner less likely to continue the complained of action.

108 Either as the nexus of contracts – MC Jensen and WH Meckling, ‘Theory of the Firm: Managerial Behaviour, Agency Costs, and Ownership Structure’ (1976) 3 Journal of Financial Economics 305 – or as a nexus for contracts – R Kraakman and others, The Anatomy of Corporate Law (3rd edn, OUP 2017) at 5. See also J Hardman, ‘The Nexus of Contracts Revisited: Delineating the Business, the Firm and the Legal Entity’ (2022) 34 Bond Law Review 1.

109 Eg MA Eisenberg, ‘The Conception that the Corporation is a Nexus of Contracts, and the Dual Nature of the Firm’ (1999) 24 Journal of Corporation Law 819.

110 Eg BS Black, ‘Is Corporate Law Trivial: A Political and Economic Analysis’ (1989–1990) 84 Northwestern University Law Review 542.

111 D Gibbs-Kneller and C Ogbonnaya, ‘Empirical Analysis of the Statutory Derivative Claim: De Facto Application and the Sine Quibus Non’ (2019) 19 Journal of Corporate Law Studies 303; A Keay, ‘Assessing and Rethinking the Statutory Scheme for Derivative Actions under the Companies Act 2006’ (2016) 16 Journal of Corporate Law Studies 39.

112 See SS Tang, ‘The Anatomy of Singapore’s Statutory Derivative Action: Why do Shareholders Sue – or Not?’ (2020) 20 Journal of Corporate Law Studies 327; IM Ramsay and BB Saunders, ‘Litigation by Shareholders and Directors: An Empirical Study of the Australian Statutory Derivative Action’ (2006) 6 Journal of Corporate Law Studies 397.

113 D Gibbs-Kneller and D Gindis, ‘De jure Convergence, de facto Divergence: A Comparison of Factual Implementation of Shareholder Derivative Suit Enforcement in the United States and the United Kingdom’ (2019) 30 European Business Law Review 909.

114 J Tang, ‘Shareholder Remedies: Demise of the Derivative Claim?’ (2012) 1 UCL Journal of Law and Jurisprudence 178; Q Jailani, ‘Derivative Claims under the Companies Act 2006: In Need of Reform?’ (2018) 7 UCL Journal of Law and Jurisprudence 72.

115 A Keay and J Loughrey, ‘Derivative Proceedings in a Brave New World for Company Management and Shareholders’ [2010] Journal of Business Law 151.

116 PL Davies, S Worthington and C Hare, Gower Principles of Modern Company Law (11th edn, Sweet & Maxwell 2021) para 14-023.

117 J Hardman, ‘The Plight of the UK Private Company Minority Shareholder’ (2022) 33 European Business Law Review 87, 96–98.

118 As such, incurring an ex ante bonding cost is often seen as a way to mitigate ex post residual loss – OE Williamson, ‘Corporate Finance and Corporate Governance’ (1988) 63 The Journal of Finance 567, 572.

119 O’Neill v Phillips [1999] 1 WLR 1092, 1101.

120 See George v McCarthy [2019] EWHC 2939 (Ch). Gower’s Company Law states, after citing this case on the relevance of an agreement, that ‘[p]robably for this reason alone, no further clearly defined categories of unfair prejudice can be found in the authorities, although isolated instances exist’ – PL Davies, S Worthington and C Hare, Gower Principles of Modern Company Law (11th edn, Sweet & Maxwell 2021) para 14-023.

121 This occurred in Fulham Football Club (1987) Ltd v Richards [2011] EWCA Civ 855. The implications of this on the protective function of the framework is aptly put in H McVea, ‘Section 994 of the Companies Act 2006 and the Primacy of Contract’ (2012) 75 Modern Law Review 1123. For an arbitration perspective, see P Jorgensen, ‘Unfair Prejudice in the United Kingdom: An Inalienable Right for Shareholders Comes to an End as Courts Resolve Split between Exeter and Vocam’ (2012) 4 Arbitration Law Review 316.

122 The comparative strength of other shareholders will dictate how far they are able to prevent wrongdoers – see V Atanasov, BS Black and CS Ciccotello ‘Law and Tunnelling’ (2011) 37 Journal of Corporation Law 1, 38. On the legal need to restrain controlling shareholders, see RJ Gilson and JN Gordon, ‘Controlling Controlling Shareholders’ (2003) 153 University of Pennsylvania Law Review 785.

123 A Choi and G Triantis, ‘The Effect of Bargaining Power on Contract Design’ (2012) 98 Virginia Law Review 1665; D Kennedy, ‘Form and Substance in Private Law Adjudication’ (1976) 89 Harvard Law Review 1685; M Galanter, ‘Why the “Haves” Come out Ahead: Speculations on the Limits of Legal Change’ (1974) 9 Law & Society Review 95.

124 P Paterson, ‘A Criticism of the Contractual Approach to Unfair Prejudice’ (2006) 27 Company Lawyer 204, 215.

125 Companies Act 2006, s 263(3)(a).

126 SS Tang, ‘Corporate Avengers Need Not be Angels: Rethinking Good Faith in the Derivative Action’ (2016) 16 Journal of Corporate Law Studies 471, 471.

127 Re Hardy Estates Ltd [2014] EWHC 4001 (Ch).

128 Jesner v Jarrad Properties Ltd [1992] BCC 807.

129 For cost orders in the context of unfair prejudice, see A Reisberg, ‘Indemnity Costs Orders under s.459 Petition?’ (2004) 25 Company Lawyer 116. For a more recent overview of issues in respect of the awarding of costs, see M Ahmen, ‘Bridging the Gap between Alternative Dispute Resolution and Robust Adverse Cost Orders’ (2015) 66 Northern Ireland Legal Quarterly 71.

130 A Reisberg, ‘Funding Derivative Actions: A Re-Examination of Costs and Fees as Incentives to Commence Litigation’ (2004) 4 Journal of Corporate Law Studies 345, 353.

131 ibid 355.

132 ibid 357.

133 ibid 359. For current rules, see Civil Procedure Rules 1998 (SI 1998/3132) (as amended) r 19.19 – ‘[t]he court may order the company, body corporate or trade union the benefit of which a derivative claim is brought to indemnify the claimant against liability for costs incurred in the permission application or in the derivative claim or both’ [emphasis added to demonstrate the court’s discretion].

134 ibid 360.

135 A Reisberg, ‘Access to Justice or Justice Not Accessed: Is There a Case for Public Funding of Derivative Claims?’ (2012) 37 Brooklyn Journal of International Law 1022.

136 Positive externalities are when the actions of parties have a positive effect on others – examples have been given of a lighthouse – H Sidgwick, The Principles of Political Economy (3rd edn, MacMillan 1901) 406; advantages of cross-fertilisation in nature between bees and orchards – JE Meade, ‘External Economies and Diseconomies in a Competitive Situation’ (1952) 62 The Economic Journal 54; and network advantages – ML Katz and C Shapiro, ‘Network Externalities, Competition and Compatibility’ (1985) 75 American Economic Review 424.

137 Q Curtis, ‘Information and Deterrence in Shareholder Derivative Litigation’ (2021) 23 American Law and Economics Review 395.

138 A Reisberg, ‘Shareholders’ Remedies: The Choice of Objectives and Social Meaning of Derivative Actions’ (2005) 6 European Business Organization Law Review 227, 255–58.

139 Companies Act 2006, s 260(1)(b).

140 J Payne, ‘Shareholders’ Remedies Reassessed’ (2004) 67 Modern Law Review 500, 501. Of course, as Payne goes on to note, the derivative claim will remain important where the unfair prejudice regime is unavailable – see discussion in J Payne, ‘Section 459 and Public Companies’ (1999) 115 Law Quarterly Review 368. Whilst these articles predate the current regime, the point they evidence remains the same under the current regime.

141 AM Gray, ‘The Statutory Derivative Claim: an Outmoded Superfluousness?’ (2012) 33 Company Lawyer 295.

142 AK Koh, ‘Shareholder Withdrawal in Close Corporations: An Anglo-German Comparative Analysis’ (2022) 22 Journal of Corporate Law Studies 197, 214–15.

143 ‘But the unfairness does not lie in the exclusion alone but in exclusion without a reasonable offer. If the respondent to a petition has plainly made a reasonable offer, then the exclusion as such will not be unfairly prejudicial and he will be entitled to have the petition struck out’. – O’Neill v Phillips [1999] 1 WLR 1092, 1107 per Lord Hoffman.

144 See discussion in SK Miller, ‘How Should UK and US Minority Shareholder Remedies for Unfairly Prejudicial or Oppressive Conduct be Reformed?’ (1999) 36 American Business Law Journal 579.

145 The remedy remains discretionary, and the ‘petitioner must still convince the court that it is fit to make an order granting the relief which he seeks’ – Antoniades v Wong [1998] BCC 58, 63 per Mummery LJJ.

146 For example, if articles set out ‘bad leaver’ provisions governing the purchase of shares – see Re Braid Group (Holdings) Ltd [2016] CSIH 68.

147 Some guidance is available – Profinance Ltd SA v Gladstone [2002] 1 WLR 1024, but this does nothing to resolve underlying heterogenous expectations in respect of the company’s performance, which often need the skills of lawyers to resolve – see RJ Gilson, ‘Value Creation by Business Lawyers: Legal Skills and Asset Pricing’ (1984) 94 Yale Law Journal 239.

148 Eg Re Brenfield Squash Racquet Club Ltd [1996] 2 BCLC 184 Ch D. Here, though, this was the requested remedy.

149 See analysis in A Pavlovich, ‘“Reasonable Offers” as a Defence to Unfair Prejudice Petitions: Prescott v Potamianos’ (2020) 83 Modern Law Review 443.

150 See V Joffe and others, Minority Shareholders: Law, Practice and Procedure (6th edn, OUP 2018) ch 7. This goes beyond an issue of UK law – any form of buyout is quite complicated – see C Veziroğlu, ‘Buy-Out of the Oppressed Minority’s Shares in Joint Stock Companies: A Comparative Analysis of Turkish, Swiss and English Law’ (2018) 19 European Business Organization Law Review 527; AK Koh, ‘Shareholder Withdrawal in Close Corporations: An Anglo-German Comparative Analysis’ (2022) 22 Journal of Corporate Law Studies 197.

151 For example, is it appropriate to apply a discount to the minority’s shareholding because it is a minority stake? The general rule seems to be that there can be no discount where there is no quasi partnership – see CVC/Opportunity Equity Partners Ltd v Demarco Almeida [2002] BCC 684, [41]. However, the no discount rule is not absolute – see Phoenix Office Supplies Ltd v Larvin [2002] EWCA Civ 1740, [28]–[34]. A different approach altogether, that a discount can only be applied where shares were purchased at a discount, has also been advanced in Re Blue Index Ltd [2014] EWHC 2680, [21]–[29], [34]–[38] and [48]–[51]. This demonstrates merely one small complication to be navigated prior to obtaining relief.

152 M Almadani, ‘Derivative Actions: Does the Companies Act 2006 Offer a Way Forward?’ (2009) 30 Company Lawyer 131.

153 D Gibbs, ‘Has the Statutory Derivative Claim Fulfilled Its Objectives? The Hypothetical Director and CSR: Part 2’ (2011) 32 Company Lawyer 76.

154 EC Mujih, ‘The New Statutory Derivative Claim: A Paradox of Minority Shareholder Protection: Part 2’ (2012) 33 Company Lawyer 99.

155 On group dynamics, see P French, ‘The Corporation as a Moral Person’ (1979) 16 American Philosophical Quarterly 207; P French, ‘Types of Collectivities and Blame’ (1975) 56 The Personalist 160.

156 As Frank put it: ‘men lose their individual freedom in an organization and assume rights and obligations peculiar to the group, and the group’s task, and their various dealings are as one group member to the group, rather than as a person to a person’ – LK Frank, ‘Institutional Analysis of the Law’ (1924) 24 Columbia Law Review 480, 490.

157 DC North, ‘Institutions’ (1991) 5 Journal of Economic Perspective 97.

158 This is the traditional view – see GM Hodgson, ‘What are Institutions?’ (2006) 40 Journal of Economic Issues 1; DC North, Institutions, Institutional Change and Economic Performance (CUP 1990) 3–4; T Parsons, ‘The Place of Ultimate Values in Sociological Theory’ (1935) 45 International Journal of Ethics 282, 299.

159 JR Searle, ‘What is an Institution?’ (2005) 1 Journal of Institutional Economics 1.

160 See GM Hodgson, ‘What are Institutions?’ (2006) 40 Journal of Economic Issues 1, 2; SS Klammer and EA Scorsone, The Legal Foundations of Micro-Institutional Performance: A Heterodox Law & Economics Approach (Elgar 2022) 11–15; GM Hodgson, ‘Taxonomic Definitions in Social Science, with Firms, Markets and Institutions as Case Studies’ (2019) 15 Journal of Institutional Economics 207.

161 For example, articles of association set the balance of power between shareholders and directors – SM Watson, ‘The Significance of the Source of the Powers of Boards of Directors in UK Company Law’ [2011] Journal of Business Law 597.

162 See RL Calvert, ‘Rational Actors, Equilibrium, and Social Institutions’ in J Knight and I Sened (eds), Explaining Social Institutions (University of Michigan Press 1998).

163 H Gintis, ‘The Evolution of Private Property’ (2006) 64 Journal of Economic Behaviour & Organization 1.

164 F Hindriks and F Guala, ‘Institutions, Rules and Equilibria: A Unified Theory’ (2015) 11 Journal of Institutional Economics 459. For a critique of this approach, see GM Hodgson, ‘On Defining Institutions: Rules Versus Equilibria’ (2015) 11 Journal of Institutional Economics 497.

165 SES Crawford and E Ostrom, ‘A Grammar of Institutions’ (1995) 89 American Political Science Review 582; M-L Djelic, ‘Institutional Perspectives – Working towards Coherence or Irreconcilably Diversity?’ in G Morgan, JL Campbell, C Crouch, OK Pederson and R Whitley (eds), The Oxford Handbook of Comparative Institutional Analysis (OUP 2010).

166 This provides evident parallels to the analysis of separate legal personality, which ultimately conceptualises the legal person as merely the subject of rights and duties – see J Dewey, ‘The Historic Background of Corporate Legal Personality’ (1926) 35 Yale Law Journal 655.

167 See OE Williamson, ‘The New Institutional Economics: Taking Stock, Looking Ahead’ (2000) 38 Journal of Economic Literature 595.

168 See DC North, Institutions, Institutional Change and Economic Performance (CUP 1990) 24.

169 S Voigt, ‘How (Not) to Measure Institutions’ (2013) 9 Journal of Institutional Economics 1.

170 GM Hodgson, ‘Much of the “Economics of Property Rights” Devalues Property and Legal Rights’ (2015) 11 Journal of Institutional Economics 683. Law also constitutes institutions – see N MacCormick, Institutions of Law: An Essay in Legal Theory (OUP 2007) ch 2. Law, of course, also has its own institutions, and various elements of the legal taxonomy also have their own institutions.

171 S Deakin and others, ‘Legal Institutionalism: Capitalism and the Constitutive Role of Law’ (2017) 45 Journal of Comparative Economics 188; S Deakin, D Gindis and GM Hodgson, ‘What is a Firm? A Reply to Jean-Philippe Robé’ (2021) 17 Journal of Institutional Economics 861.

172 SM Watson, ‘The Corporate Legal Person’ (2019) 19 Journal of Corporate Law Studies 137.

173 J Armour and MJ Whincop, ‘The Proprietary Foundations of Corporate Law’ (2007) 27 Oxford Journal of Legal Studies 429; MM Blair, ‘The Neglected Benefits of the Corporate Form: Entity Status and the Separation of Asset Ownership from Control’ in A Grandori (ed), Corporate Governance and Firm Organization: Microfoundations and Structural Forms (OUP 2004).

174 SM Watson, ‘The Corporate Legal Entity as a Fund’ [2018] Journal of Business Law 467.

175 For example, by arguing that overall company value is detached from pure shareholder value – see JE Fisch, ‘Measuring Efficiency in Corporate Law: The Role of Shareholder Primacy’ (2006) 31 Journal of Corporation Law 637.

176 See EF Fama and MC Jensen, ‘Organizational Forms and Investment Decisions’ (1985) 14 Journal of Financial Economics 101; OE Williamson, ‘Comparative Economic Organization: The Analysis of Discrete Structural Alternatives’ (1991) 36 Administrative Science Quarterly 269.

177 Eg the right to obtain repayment – see E McKendrick, Goode and McKendrick on Commercial Law (6th edn, Penguin 2020) para 22.05.

178 TH Jackson and AT Kronman, ‘Secured Financing and Priorities Among Creditors’ (1979) 88 Yale Law Journal 1143.

179 AK Sundaram and AC Inkpen, ‘The Corporate Objective Revisited’ (2004) 15 Organization Science 350.

180 See discussion in AK Koh, ‘Shareholder Protection in Close Corporations and the Curious Case of Japan: The Enigmatic Past and Present of Withdrawal in a Leading Economy’ (2021) 53 Vanderbilt Law Review 1207.

181 FH Easterbrook and DR Fischel, ‘Close Corporations and Agency Costs’ (1985) 38 Stanford Law Review 271, 301.

182 SM Bainbridge, ‘In Defense of the Shareholder Wealth Maximisation Norm: A Response to Professor Green’ (1993) 50 Washington and Lee Law Review 1423.

183 LA Stout, ‘Bad and Not-so-Bad Arguments for Shareholder Primacy’ (2002) 75 Southern California Law Review 1189. The extent to which this creates an inherent conflict between the interests of shareholders and the company depends on your view of shareholders – see JG Hill, ‘Good Activist/Bad Activist: The Rise of International Stewardship Codes’ (2018) 41 Seattle University Law Review 497.

184 Eg Macaura v Northern Assurance Company, Limited [1925] AC 619, 626–627.

185 P Ireland, ‘Corporate Schizophrenia: The Institutional Origins of Corporate Social Irresponsibility’ in N Boeger and C Villiers (eds), Shaping the Corporate Landscape (Hart 2018).

186 WT Allen, ‘Our Schizophrenic Conception of the Business Corporation’ (1992) 14 Cardozo Law Review 261.

187 For an archetypal analysis that links minority protection to a shareholder-focused narrative to the exclusion of the institution, see DG Smith, ‘The Shareholder Primacy Norm’ (1998) 23 Journal of Corporation Law 277, 310–22.

188 Eg D Acemoglu and S Johnson, ‘Unbundling Institutions’ (2005) 113 Journal of Political Economy 949. For the use of such tools by lawyers, see SM Franken, ‘Cross-Border Insolvency Law: A Comparative Institutional Analysis’ (2014) 34 Oxford Journal of Legal Studies 97; DH Cole, ‘The Varieties of Comparative Institutional Analysis’ [2013] Wisconsin Law Review 383.

189 LK Frank, ‘Institutional Analysis of the Law’ (1924) 24 Columbia Law Review 480.

190 The ‘mysterious rite of incorporation’ (EM Dodd, ‘For whom are corporate managers trustees’ (1932) 45 Harvard Law Review 1145, 1160) results in shareholders exchanging the rights they would have as owners or creditors for a new, prescribed set of rights as a ‘shareholder’ – Companies Act 2006, s 16(2).

191 This legal person is thus subject and object of legal rights – K Iwai, ‘Persons, Things and Corporation: The Corporate Personality Controversy and Comparative Corporate Governance’ (1999) 47 American Journal of Comparative Law 583.

192 Eg restraining self-interested behaviour by management through internal corporate procedural channels – LA Bebchuk, ‘The Case for Increasing Shareholder Power’ (2005) 118 Harvard Law Review 833.

193 Companies Act 2006, s 172. For the extent to which this is effective, see A Keay, ‘Moving Towards Stakeholderism – Constituency Statutes, Enlightened Shareholder Value, and More: Much Ado about Little’ (2011) 22 European Business Law Review 1; A Keay and T Iqbal, ‘The Impact of Enlightened Shareholder Value’ [2019] Journal of Business Law 304.

194 See discussion by Lord Bingham in Johnson v Gore Wood & Co [2002] 2 AC 1, 35–36, which has been accepted in Sevilleja v Marex Financial Ltd [2020] UKSC 31, [89] per Lord Reed.

195 This is often referred to as the ‘residual claim’ – see discussion in FH Easterbrook and DRR Fischel, ‘Voting in Corporate Law’ (1983) 26 Journal of Law and Economics 395.

196 Civil Procedure Rules 1998 (SI 1998/3132) (as amended) r 19.14.

197 Companies Act, s 261(3)(a). Whilst it is theoretically possible to include such time in damages calculation – eg Aerospace Publishing Ltd v Thames Water Utilities Ltd [2007] EWCA Civ 3 – this only applies if the claim is successful, and is fraught with quantification and proof challenges – P Hurst, Civil Costs (6th edn, Sweet & Maxwell 2018) para 20-031. Similarly, cost recoveries do not deal with the immediacy of particular staff time – it is likely to be less important that, for example, the costs of a temporary replacement finance director’s time can be reimbursed later, than that the normal finance director be available to further the profit of the company at that particular time.

198 Re Kings Solutions Group Ltd [2021] EWCA Civ 1943; Graham v Every [2014] EWCA Civ 191.

199 See A Keay and J Loughrey, ‘The Concept of Business Judgment’ (2019) 39 Legal Studies 36; A Keay and others, ‘Reviewing Directors’ Business Judgements: Views from the Field’ (2020) 47 Journal of Law and Society 639.

200 See E Micheler, Company Law: A Real Entity Theory (OUP 2021), 29–32. See also J Armour, ‘Derivative Actions: a Framework for Decisions’ (2019) 135 Law Quarterly Review 412.

201 There is a vast raft of literature on this point – see E Kamar, ‘Shareholder Litigation under Indeterminate Corporate Law’ (1999) 66 University of Chicago Law Review 887; R Kraakman, H Park and S Shavell, ‘When are Shareholder Suits in Shareholder Interests?’ (1994) 82 Georgetown Law Journal 1733; A Reisberg, Derivative Actions and Corporate Governance (OUP 2007), ch 6.

202 See discussion in LA Hamermesh, ‘A Most Adequate Response to Excessive Shareholder Litigation’ (2016) 45 Hofstra Law Review 147; EPM Vermeulen and DA Zetzsche, ‘The Use and Abuse of Investor Suits’ (2010) 7 European Company and Financial Law Review 1.

203 J Armour, ‘Derivative Actions: a Framework for Decisions’ (2019) 135 Law Quarterly Review 412.

204 Whilst the legal profession should assist with this, rent-seeking behaviour by lawyers can undermine the filtering of the raising of frivolous claims – see JC Coffee, ‘Rethinking the Class Action: A Policy Primer on Reform’ (1987) 62 Indiana Law Journal 625.

205 For exposition that a minority remedy with easier access requires more judicial oversight into business operations than exist under standard review, see DK Moll, ‘Shareholder Oppression & Dividend Policy in the Close Corporation’ (2003) 60 Washington & Lee Law Review 841 at 870. See also DK Moll, ‘Minority Oppression & (and) the Limited Liability Company: Learning (Or Not) from Close Corporation History’ (2005) 40 Wake Forest Law Review 883.

206 Eg see EPM Vermeulen and DA Zetzsche, ‘The Use and Abuse of Investor Suits’ (2010) 7 European Company and Financial Law Review 1.

207 See n 197 above.

208 Eg Martin v Hughes [2021] CSOH 109.

209 This happened in Re Brenfield Squash Racquets Club Ltd [1996] 2 BCLC 184 Ch D, but here it was the remedy requested by the minority shareholder – see G Morse and others, Palmer’s Company Law (release 176, Sweet and Maxwell2022) para 8.3820. Koh identified ‘not even a single case where the court made a clearly innocent member liable to the withdrawing member against the former’s will’ – AK Koh, ‘Shareholder Withdrawal in Close Corporations: an Anglo-German Comparative Analysis’ (2022) 22 Journal of Corporate Law Studies 197, 215.

210 Companies Act 2006, s 996(2)(e).

211 See discussion in Ming Siu Hung v JF Ming Inc [2021] UKPC 1. Gower’s Company Law calls this ‘the most common remedy’ – PL Davies, S Worthington and C Hare, Gower Principles of Modern Company Law (11th edn, Sweet & Maxwell 2021) para 14.029. Palmer’s Company Law states that such a remedy ‘has the undoubted advantage in small companies, where personal relations between the petitioner and the other members have broken down irretrievably, that it may provide both redress in relation to past wrongs and, through the exit, take the petitioner out of the path of any future unfair prejudice’ – G Morse and others, Palmer’s Company Law (release 176, Sweet and Maxwell 2022) para 8.3820.

212 MA Eisenberg, The Structure of the Corporation: A Legal Analysis (reprint, Beard Books 2006), 17; MM Blair, ‘Corporate Personhood and the Corporate Persona’ [2013] University of Illinois Law Review 785.

213 AK Koh, ‘Shareholder Withdrawal in Close Corporations: an Anglo-German Comparative Analysis’ (2022) 22 Journal of Corporate Law Studies 197, 215.

214 Re Edwardian Group Ltd [2018] EWHC 1715 (Ch).

215 ibid [630].

216 ibid [651]–[654].

217 Companies Act, s 996(2)(e).

218 See Companies Act 2006, Part 18 Ch 6. Treasury shares could only be utilised by public companies until 2013 – see Companies Act 2006, s 724(2) as originally enacted. For an overview of the liberalisation, see PL Davies, S Worthington and C Hare, Gower Principles of Modern Company Law (11th edn, Sweet & Maxwell 2021) para 17-023.

219 Shah v Shah [2011] EWHC 1902(ch).

220 ibid [57].

221 Companies Act 2006, s 641, the statutory form of a long-standing rule – Trevor v Whitworth (1887) 12 App Cas 409.

222 These circumstances have become more liberal over time – see discussion in J Armour, ‘Legal Capital: An Outdated Concept?’ (2006) 7 European Business Organization Law Review 5; E Ferran, ‘Revisiting Legal Capital’ (2019) 20 European Business Organization Law Review 521 – but remain exceptions rather than the heart of the rule.

223 Companies Act 2006, ss 642–644. For discussion of such solvency statements in practice, see P Graham, ‘A Note on the Decisions in BTI 2014 LLC v Sequana SA and BAT Industries plc (BAT) v Sequana SA’ (2017) 38 Company Lawyer 116.

224 Companies Act 2006, ss 645–649.

225 Companies Act 2006, s 646(1).

226 Companies Act 2006, s 646(4) and s 646(5).

227 Shah v Shah [2011] EWHC 1902(ch),[57].

228 The prohibition first appears in Prudential Assurance Co Ltd v Newman Industries Ltd (No. 2) [1982] Ch 204.

229 PL Davies, ‘Reflecting on “Sevilleja v Marex Financial”’ (Oxford Business Law Blog, 5 August 2020) <https://www.law.ox.ac.uk/business-law-blog/blog/2020/08/reflecting-sevilleja-v-marex-financial>.

230 See discussion in J Hardman, ‘Sevilleja v Marex Financial Ltd: Reflective Loss and the Autonomy of Company Law’ (2022) 85 Modern Law Review 232.

231 Sevilleja v Marex Financial Ltd [2020] UKSC 31; [2021] AC 39.

232 ibid [156] per Lord Sales.

233 Lord Reid’s judgement was supported by two other judges, Lord Sales’ by two other judges, and Lord Hodge gave his own judgment generally agreeing with Lord Reid. As such, plurality is technically more accurate than majority – see S Laing, ‘Reflective Loss in the UK Supreme Court’ (2020) 79 Cambridge Law Journal 411.

234 Sevilleja v Marex Financial Ltd [2020] UKSC 31; [2021] AC 39, [36], [81] and [83] per Lord Reid, [103] per Lord Hodge.

235 A Tettenborn, ‘Creditors and Reflective Loss – a Bar Too Far?’ (2019) 135 Law Quarterly Review 182, 183.

236 Insolvency Act 1986, s 122(1)(g). This formulation, as a catch all ability for the court, was first provided for in Joint Stock Companies Winding-Up Act 1848, s V(8).

237 Insolvency Act 1986, s 125.

238 G Morse and others, Palmer’s Company Law (release 176, Sweet and Maxwell 2022) para 8.3912.

239 See Jesner v Jarrad Properties 1993 SC 34; Anderson v Hogg 2002 SC 190, 197–198 and 201; Hawkes v Cuddy [2009] EWCA Civ 291.

240 Civil Practice Directions, Practice Direction – Insolvency Proceeding, para 22.1. Available at <https://www.justice.gov.uk/courts/procedure-rules/civil/rules/insolvency_pd#22>.

241 D Kennedy, The Dark Sides of Virtue: Reassessing International Humanitarianism (Princeton University Press 2004).

242 ibid ch 1.

243 ibid 9.

244 ibid 9.

245 JK Galbraith, The Affluent Society (40th anniversary edition, Penguin 1999) 9. See discussion in J Hardman and G Ramírez Santos, ‘Empirical Evidence for the Continuing Need to “Think Small First” in UK Company Law’ (2022) 24 European Business Organization Law Review 117.

246 D Kennedy, The Dark Sides of Virtue: Reassessing International Humanitarianism (Princeton University Press 2004) 9.

247 D Kennedy, The Dark Sides of Virtue: Reassessing International Humanitarianism (Princeton University Press 2004) 10.

248 Gower’s Company Law even states that ‘there is some evidence that the unfair prejudice remedy, whatever its imperfections, has successfully “crowded out” alternative techniques of controlling the exercise of majority power through board decisions’ – PL Davies, S Worthington and C Hare, Gower Principles of Modern Company Law (11th edn, Sweet & Maxwell 2021) para 14-035.

249 Eg S Ottolenghi, ‘From Peeping Behind the Corporate Veil, to Ignoring it Completely’ (1990) 53 Modern Law Review 338; IM Wormser, ‘Piercing the Veil of Corporate Entity’ (1912) 12 Columbia Law Review 496; D Cabrelli, ‘The Case Against Outsider Reverse Veil Piercing’ (2010) 10 Journal of Corporate Law Studies 343.

250 D.H.N. Food Distributors Ltd v Tower Hamlets Borough Council [1976] 1 WLR 852. See discussion in D Powles, ‘The “See-through” Corporate Veil’ (1977) 40 Modern Law Review 339.

251 Woolfson v Strathclyde Regional Council (1978) SC (HL) 90, 96. See discussion in FG Rixon, ‘Lifting the Veil between Holding and Subsidiary Companies’ (1986) 102 Law Quarterly Review 415.

252 Adams v Cape Industries plc [1990] Ch 433, 536. See discussion in MT Moore, ‘“A Temple Built on Faulty Foundations”: Piercing the Corporate Veil and the Legacy of Salomon v Salomon’ [2006] Journal of Business Law 180.

253 VTB Capital plc v Nutritek International Corp [2013] UKSC 5, [124] per Lord Neuberger.

254 For the current law, see G Allan, ‘To Pierce or Not to Pierce? A Doctrinal Reappraisal of Judicial Responses to Improper Exploitation of the Corporate Form’ [2018] Journal of Business Law 559; EC Mujih, ‘Piercing the Corporate Veil: Where is the Reverse Gear?’ (2017) 133 Law Quarterly Review 322.

255 Hurstwood Properties (A) Ltd v Rossendale Borough Council [2021] UKSC 16. See discussion in A Musk, ‘Piercing the Corporate Veil: Post-Prest’ (2022) 43 Company Lawyer 133.

256 See A Dignam and P Oh, ‘Rationalising Corporate Disregard’ (2020) 40 Legal Studies 187.

257 Eg see H Hansmann and R Kraakman, ‘Towards Unlimited Shareholder Liability for Corporate Torts’ (1991) 100 Yale Law Journal 1879. This is even more acute in the group situation – see M Petrin and B Choudhury, ‘Group Company Liability’ (2018) 19 European Business Organization Law Review 771; C Witting, ‘The Corporate Group: System, Design and Responsibility’ (2021) 80 Cambridge Law Journal 581.

258 See discussion in J Hardman, ‘Fixing the Misalignment of the Concession of Corporate Legal Personality’ (2023) 43 Legal Studies 443.

259 Prest v Petrodel Resources Ltd [2013] UKSC 34,[35] per Lord Sumption.

260 See Vedanta Resources plc v Lungowe [2019] UKSC 20; Okpabi v Royal Dutch Shell plc [2021] UKSC 3; C van Dam, ‘Breakthrough in Parent Company Liability: Three Shell Defeats, the End of an Era and New Paradigms’ (2021) 18 European Company and Financial Law Review 714.

261 See above (n 46).

262 BS Black, ‘Is Corporate Law Trivial: A Political and Economic Analysis’ (1989–1990) 84 Northwestern University Law Review 542.

263 Eg D Kennedy, A World of Struggle: How Power, Law and Expertise Shape Global Political Economy (Princeton 2016), 135.

264 See MJ Whincop, ‘Painting the Corporate Cathedral: The Protection of Entitlements in Corporate Law’ (1999) 19 Oxford Journal of Legal Studies 19.

265 Monet painted over 30 paintings of Rouen Cathedral in different times of day, weathers and seasons. The philosophical question is which one shows the cathedral – see discussion in G Calabresi and AD Melamed, ‘Property Rules, Liability Rules, and Inalienability: One View of the Cathedral’ (1972) 85 Harvard Law Review 1089.

266 See J Hardman, ‘Atomising Corporate Law: A Battle Cry for Splitters’ in C Bruner and MT Moore (eds), Research Agenda for Corporate Law (Elgar 2023).

Additional information

Notes on contributors

Jonathan Hardman

Dr Jonny Hardman is a senior lecturer in company and commercial law at the University of Edinburgh. He writes on a variety of corporate law issues from a number of different perspectives. He is one of the founders and co-organisers of the Global Seminars in Corporate Law seminar series, and the convenor of the SLS Company Law subject section. Further details as to his research are available at www.hardmanlaw.co.uk.