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Shareholders in a company registered in England and Wales have a well-established right under section 994 of the Companies Act 2006 to challenge decisions of the company that have caused them unfair prejudice. Under the Act and in their capacity as minority shareholders, they have the right to bring a Petition against the company before the Court where such decisions can be challenged and in circumstances where they have no power otherwise to impact on the way a company is operated.
Accordingly, litigation between shareholders and director disputes is common and, technically speaking, in such proceedings the company must also be included as a party.
A question that has accordingly arisen in proceedings of this nature relates to litigation privilege and whether the company (effectively run by the directors/shareholders against whom the unfairly prejudice conduct is alleged) can attempt to avoid providing documentation to the complaining shareholder.
Legal professional privilege entitles a party to withhold evidence from production to a third party or the court. The question has often arisen therefore as to whether the company is entitled to claim privilege to justify a refusal to produce of documentation.
The general rule, following a 2015 case, is that a shareholder is entitled to disclosure of all documents obtained by the company during its administration, including advice given by the company’s solicitors. There has been however a well-established exception where the advice given to the company relates to the actual or contemplated litigation taking place between shareholders. For such do, privilege does apply.
In a more recent 2023 decision, the court has shown an indication to shy away from that analysis and criticised the general rule, particularly in circumstances where the foundation of that rule was based on the Court’s earlier suggestion that the relationship between a company and its shareholders was the same as between a trustee and beneficiaries. The courts have more recently suggested that this is not necessarily the case since a company is totally separate from its shareholders and where those shareholders, unlike beneficiaries, do not have any direct interest in the company’s assets.
Both shareholders and directors who become involved in unfair prejudice litigation should therefore be aware that the disclosure obligations between the parties, and particularly on the part of the company, may become contentious particularly where sensitive or documents of a potentially confidential nature may be involved.
BBS’s shareholder dispute solicitors in both Manchester and London have significant experience of acting for both shareholders and directors in Company related disputes including section 994 Petitions.
