Chelsea Carter, instructed by Harrison Drury & Co Ltd, appeared before Mr Justice Fancourt, the Vice-Chancellor of the County Palatine of Lancaster, on an appeal against an order dismissing an application brought by the Appellant, Mr Stansfield, to strike out a section 994 petition presented by the Respondents, Mr and Mrs Ronnan, and alternatively for summary judgment against the Respondents.
The appeal in Ronnan v Stansfield [2025] EWHC 2034 (Ch) raised the question of whether an unfair prejudice petition presented by majority shareholders may be justified and allowed to proceed where the petitioners face practical impossibility/difficulty in using their board control of the company to remedy the unfairly prejudicial conduct, as opposed to a legal impediment.
Matthew Collings KC, leading Gareth Darbyshire, submitted on behalf of Mr Stansfield that Re Legal Costs Negotiators Ltd [1999] BCC 547 (CA) extinguished the prospect of majority shareholders with control of the board presenting an unfair prejudice petition. Mr Collings KC argued that there had to be an impediment in a legal sense to the power of the majority to take the necessary steps to put an end to the unfairly prejudicial conduct, not just a practical impossibility/difficulty, before a petition presented by majority shareholders could proceed.
Chelsea Carter submitted on behalf of Mr and Mrs Ronnan that Re Legal Costs is not binding authority for the proposition that a majority petition can only be presented where there is a legal impediment to the use of majority votes to remedy the unfair prejudice. Miss Carter acknowledged that, on the authorities, a majority petition is regarded as exceptional, but argued that a practical impossibility/difficulty in using board control to remedy the unfairly prejudicial conduct may justify the presentation of a petition by the majority. Miss Carter submitted that the effect of Mr Stansfield’s unfairly prejudicial conduct was continuing and that the company had been effectively stripped of its assets, so removing Mr Stansfield as a director would not have put an end to the unfair prejudice, and the company did not have money with which to commence proceedings against Mr Stansfield.
The Vice-Chancellor concluded (at [42]), “While I would not decide, as Mr Collings invited me to, that only a legal impediment to the exercise of control can ever suffice to justify a petition by a majority shareholder, such a petitioner would in my judgment have to establish that it was practically impossible, not just difficult, for it to use its corporate control to pursue a more appropriate remedy. The proper claimant for the matters alleged in this Petition was the Company, as they are breaches of duties owed to the Company. It is only if the Company cannot pursue that claim that the conduct will unfairly have prejudiced Mr and Mrs Ronnan as shareholders.”
Notwithstanding the legal position being decided in Mr and Mrs Ronnan’s favour, on the facts, the Vice-Chancellor concluded that it was not practically impossible for Mr and Mrs Ronnan to use their control of the board to cause the company to issue a claim for financial compensation, and that there was no evidence that the company was insolvent and therefore unable to fund a claim. Accordingly, the appeal was allowed, and the petition was struck out.
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