is a

UK company law British company law regulates corporations formed under the Companies Act 2006. Also governed by the Insolvency Act 1986, the UK Corporate Governance Code, European Union Directive (European Union), Directives and court cases, the company is th ...

case, which concerns a claim for

unfair prejudice Unfair prejudice in United Kingdom company law is a statutory form of action that may be brought by aggrieved shareholders against their company. Under the Companies Act 2006 the relevant provision is s 994, the identical successor to s 459 Compan ...

(now s 994

Companies Act 2006 The Companies Act 2006 (c. 46) is an act of the Parliament of the United Kingdom which forms the primary source of UK company law. The act was brought into force in stages, with the final provision being commenced on 1 October 2009. It largel ...

) and raised the question of barring a claim if attempted to recover for

reflective loss In United Kingdom company law, reflective loss is the loss of individual shareholders that is inseparable from general loss of the company. The rule against recovery of reflective loss states that there should be no double recovery, so a shareholde ...

(loss to the company, which also prejudices a member). The case is a notable precedent because it makes clear that a nominee shareholder is also a legitimate petitioner for unfair prejudice.L Sealy and S Worthington, ''Sealy's Cases and Materials in Company Law'' (9th edn OUP 2010) 651;

PL Davies Paul Lyndon Davies King's Counsel, KC (Hon), British Academy, FBA (born 24 September 1944) is Allen & Overy Professor of Corporate law, Corporate Law Emeritus at the University of Oxford, Emeritus Fellow of Balliol College, Oxford, Emeritus Fello ...

, ''Gower and Davies Principles of Modern Company Law'' (8th edn Sweet and Maxwell 2008) 683.

Facts

Brightview Ltd provided internet services. Its shares were in two classes, X and Y shares. Mr Shalson held the majority of X shares through another company called Reedbest Properties Ltd. Atlasview Ltd controlled the majority of Y shares. Brightview's business had faltered after it failed to fulfill an immediate demand to repay a loan of £5.24 million from the X shareholders. An

administration Administration may refer to: Management of organizations * Management, the act of directing people towards accomplishing a goal: the process of dealing with or controlling things or people. ** Administrative assistant, traditionally known as a se ...

order was made. Shortly after, Brightview was sold to another company owned by the X shareholders. Atlasview complained that it (with Y shareholders) had been unfairly prejudiced under

Companies Act 1985 The Companies Act 1985 (c. 6) is an Act of the Parliament of the United Kingdom of Great Britain and Northern Ireland, enacted in 1985, which enabled companies to be formed by registration, and set out the responsibilities of companies, their ...

, section 459 (now s 994

). It argued the loan terms left the company so exposed that the X shareholders were able to strip the company's assets for its own benefit and to the exclusion of Y shareholders. Moreover, Atlasview argued that an "investment agreement" with Mr Shalson was breached when the loan was taken. Mr Shalson and Reedbest argued that Atlasview could not make a claim because it was merely a nominee shareholder and therefore had no economic interest in Brightview, and therefore could not be "prejudiced". They also argued that Atlasview was attempting to claim losses for the diminution of the Y shares' value, as a result of an alleged breach of director's duty, but they should be barred because this loss was merely reflective of the company's loss. Accordingly, they requested that the claim be struck out as an

abuse of process Abuse is the act of improper usage or treatment of a person or thing, often to unfairly or improperly gain benefit. Abuse can come in many forms, such as: physical or verbal maltreatment, injury, assault, violation, rape, unjust practices, ...

, because Atlasview should have sought redress through opposing the initial administration petition.

Judgment

Deputy Judge Jonathan Crow held there was no good reason for striking out the petition, except that two of the petitioners who were not members of the company, nor had shares transferred to them by operation of law, should be removed from the petition. He also held that the "interests" of a nominee shareholder could certainly include the economic and contractual interests of a beneficial owner, and the court had the discretion under s 461 (now s 996) to make an appropriate award. On the reflective loss argument, there was no good reason to prevent a claim for breach of

directors' duties Directors' duties are a series of statutory, common law and equitable obligations owed primarily by members of the board of directors to the corporation that employs them. It is a central part of corporate law and corporate governance. Directors' ...

, even if they are owed to the company, because the wording of s 994 did not preclude it. Nor did the case law support such a change, since one of the reasons for the unfair prejudice petition being introduced was to "outflank" the restrictive procedure for

derivative action A shareholder derivative suit is a lawsuit brought by a shareholder on behalf of a corporation against a third party. Often, the third party is an insider of the corporation, such as an executive officer or director. Shareholder derivative suits are ...

s. Lastly there was no clear abuse of process, as it may well have been that the administration petition was done too quickly for Atlasview to respond.

Facts

Judgment

See also

References

Further reading