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 THE STATUTORY PROTECTION OF MINORITY
SHAREHOLDERS IN THE UNITED KINGDOM

Nigel Furey*

INTRODUCTION

During the last fifteen years, both the willingness and the ability of
United Kingdom courts to intervene to protect the interests of minority
shareholders have dramatically increased. This has come about as a result
of two developments: one judicial, the other legislative. First, the judicial
development was the 1972 decision of the House of Lords in Ebrahimi v.
Westbourne Galleries Ltd.' This decision granted a just and equitable
winding up order in circumstances when the majority shareholders, in re-
moving a director from office, had acted both lawfully and constitution-
ally.2 The House of Lords recognized that in many companies there are
underlying expectations regarding the exercise of legal and constitutional
rights which, if unfulfilled, entitle a shareholder-petitioner to have the
company wound up.3 The impact of this decision has been felt not only in
applications for just and equitable winding up, but has also resulted in a
stronger inclination of United Kingdom courts to grant injunctions to
give effect to expectations reflecting the exercise of legal rights. Second,
the legislature, in the Companies Act of 1980, liberalized the remedy for
oppressed minority shareholders, which had initially appeared in the
Companies Act of 1948.' This article will trace the background of each
development and then illustrate the impact of each in developing the
courts' newfound interventionist approach. Finally, there will be an as-
sessment of the courts' present disposition and their willingness to pro-
tect minority shareholders.

* Lecturer in Law, University of Bristol, England.

1. 1973 A.C. 360 (1972).
2. Id. at 374.
3. Id. at 379-80.
4. Companies Act, 1948, 11 & 12 Geo. 6, ch. 38, § 210. This section was replaced by a
revised version in the Companies Act, 1980, ch. 22, § 75. Since 1980 the companies legisla-
tion has been consolidated in the Companies Act of 1985. The present provisions are identi-
cal to those introduced in 1980. Companies Act, 1985, ch. 6, §§ 459-461. References through-
out this article to material in section 210 or section 75 of the earlier acts refer to material
currently found in sections 459-61 of the 1985 Act.
 WAKE FOREST LAW REVIEW [Vol. 22

I. JUST AND EQUITABLE WINDING UP

A. Origins
The Joint Stock Companies Winding Up Act of 1848 is the original
source of the courts' power to order just and equitable winding up.' The
Act for the first time permitted members, as opposed to creditors, to peti-
tion for winding up.8 Following the repeal of this Act in 1856, the just and
equitable ground for winding up a company disappeared briefly from the
statute book but subsequently reappeared in the Companies Act of 1862.7
It has remained on the statute books ever since. In the 1848 Act, the just
and equitable ground appeared at the end of a list of other grounds, each
of which involved showing that the company was insolvent.8 Thus, it was
natural that the just and equitable ground should be construed ejusdem
generis with the preceding grounds. The grounds for winding up intro-
duced in 1856, to which the just and equitable ground was added in 1862,
had no common theme. Nevertheless, the ejusdem generis rule of con-
struction took over forty years to disappear.

B. Who May Petition?

Most commonly, minority shareholders in the company present the
petitions to wind up the company on just and equitable grounds." To
qualify to present the petition, 10 a shareholder must be an original allot-
tee of shares, 1 or have been registered as a member for at least six of the
last eighteen months preceding presentation of the petition,12 or have ac-
quired the shares through the death of a former holder. 13 Personal repre-

5. Joint Stock Companies Winding Up Act, 1848, 11 & 12 Vict., ch. 45, § 5(8). For a
discussion of just and equitable winding up, see F. CALLAWAY, WINDING UP ON THE JUST AND
EQUITABLE GROUND (1978). See also Chesterman, The "Just and Equitable" Winding Up of
Small Private Companies, 36 MOD. L. REv. 129 (1973); Huberman, Compulsory Winding-
Up - The "Just and Equitable" Rule, 5 ALBERTA L. REV. (1967); Prentice, Winding Up on
the Just and Equitable Ground: The PartnershipAnalogy, 89 LAW Q. REv. (1973); McPher-
son, Winding Up on the "Just and Equitable" Ground, 27 MOD. L. REV. 282 (1964).
6. Joint Stock Companies Winding Up Act, 1848, 11 & 12 Viet., ch. 45, § 5. A winding
up arising from a court order is known as a compulsory winding up. It is also possible for
the members to put the company into liquidation simply by passing the appropriate resolu-
tion. Companies Act, 1985, ch. 6, § 572. This is known as voluntary winding up.
7. Companies Act, 1862, 25 & 26 Vict., ch. 89, § 79(5).
8. Joint Stock Companies Winding Up Act, 1848, 11 & 12 Vict., ch. 45, § 5(8).
9. A petition may be presented by the company itself. This might be done if a major-
ity of members wished to wind up the company but they did not have the support needed
(75% of the votes cast) to pass the type of resolution required to put the company into
voluntary liquidation. See, e.g., In re Anglo-Continental Produce Co., [1939] 1 All E.R. 99
(Ch. 1938). As a result of an amendment in the Insolvency Act, 1985, ch. 6, sched. 6 (effec-
tive December 29, 1986), the directors will also be able to present a winding up petition.
10. Companies Act, 1985, ch. 6, § 519(2)(b).
11. Id. It does not matter that the allottee has not been entered in the register of
members and is thus not yet a member of the company. See In re J.N.2, [1978] 1 W.L.R.
183 (Ch. 1977).
12. Companies Act, 1985, ch. 6, § 519(2)(b).
13. Id.
1987] UNITED KINGDOM APPROACH

sentatives of a deceased shareholder, upon whom shares devolve automat-

ically, can thus petition without having registered as members, and do
not need to comply with the six months requirement.14 However, the
trustee of a bankrupt shareholder, in whom any shares held by the bank-
rupt also vest automatically, 5 must comply with the six month registra-
tion requirement."8 In addition, the shareholder petitioner must show
that he has a tangible interest in the proceedings.1 7 Except in the rare
case when shares still have a liability attached to them, the shareholder
petitioner must be able to show that if the company is wound up there
will be something left to distribute to the members."8

C. Grounds for Just and Equitable Winding Up Orders

1. Loss of substratum
Because it was consistent with the ejusdem generis rule of construc-
tion, an early ground on which the court would order just and equitable
winding up was that the purpose for which the company was formed be-
came impossible to achieve. The courts drew a distinction between cases
in which the shareholders formed the company to exploit a particular as-
set and those in which the shareholders formed the company to carry on
a trade generally. The court used winding up orders when shareholders
formed a company to exploit a particular asset; whether a patent, 9 a
mine, 20 an oil field, 21 or a particular contract.22 In such cases, the courts

14. In re Chesterfield Catering Co., 1977 Ch. 373.

15. Insolvency Act, 1985, ch. 65, § 153.
16. In re Bolton Eng'g Co., 1956 Ch. 577. The Jenkins Committee recommended that
personal representatives and trustees in bankruptcy should be expressly empowered to pre-
sent winding up petitions. REPORT OF THE COMPANY LAW COMMITTEE, 1962, CMND. No. 1749,
para. 503(g). Nothing has been done to implement this. However, a bankrupt shareholder, if
he is still registered as a member, can present the petition on the instruction of his trustee.
In re K/9 Meat Supplies, [1966] 1 W.L.R. 1112 (Ch.).
17. In re Chesterfield Catering Co., 1977 Ch. 373 (1975) (denying winding-up order to
personal representatives of deceased shareholder when corporation had no active officers, no
creditors willing to assert claim in action, and no proof that estate stood to gain from the
winding-up, since no assets sufficient to cover creditors' claims existed); In re Expanded
Plugs [1966] 1 W.L.R. 514 (Ch.) ("quasi-partner" in what court deemed a substantive part-
nership was nonetheless without standing under the Act to seek a winding-up); In re Othery
Constr., [1966] 1 W.L.R. 69 (Ch. 1965) (shareholder seeking winding up must show on face
of petition prima facia probability that assets available for distribution among sharehold-
ers); In re Rica Gold Washing Co., 11 Ch. D. 36 (C.A. 1879) (shareholder denied standing to
seek winding-up when only assets available for distribution were funds allegedly amassed by
fraud and misrepresentation).
18. The Jenkins Committee recommended that the rule should be changed but noth-
ing has been done to implement this. REPORT OF THE COMPANY LAW COMMITTEE, 1962, CMND.
No. 1749, para. 503(h). There is an exception if the petition is based on failure to supply
accounts, thereby preventing the petitioner from ascertaining whether there are surplus as-
sets. In re Newman and Howard, 1962 Ch. 257 (1961).
19. See In re German Date Coffee Co., 20 Ch. D. 169 (C.A. 1882); In re Diamond Fuel
Co., 13 Ch. D. 400 (C.A. 1879).
20. See In re Red Rock Gold Mining Co., 61 L.T. 785 (1889) (company formed to
purchase mine which proved failure; though majority willing for company to continue in
 WAKE FOREST LAW REVIEW [Vol. 22

have granted winding up orders even though the company could carry on
a business which would technically be intra vires under the objects clause
of its memorandum of association. 23 Conversely, when shareholders have
established a company to trade generally, although in a particular line of
business, the courts have rejected winding up petitions even though the
company is not profitable, 24 or is less profitable than it had been, 25 or has
disposed the business it had carried on.28 The courts have refused wind-
ing up petitions provided the company could still potentially trade in its
established line of business.
The careful drafting of the objects clause can thus diminish the
chances of a court winding up the company at the instigation of the mi-
nority, when the majority would prefer it to continue. However, it is not
clear that this can be achieved simply by inserting a clause stating that
each of the objects, whether specific or general, are to be treated as an
independent object of the company. As Lord Parker observed in Cotman
v. Brougham,27 the drafting technique of specifying powers as objects may
be effective to make transactions intra vires, as between the company and
third parties, without removing the right of minority shareholders to con-
trol the effective scope of the company's business activities.28

2. Loss of confidence
The trend to not construe the just and equitable ground ejusdem
generis with the other grounds received a significant boost in the Court of

other ventures, minority entitled to wind company up); In re Haven Gold Mining Co., 20
Ch. D. 151 (C.A. 1882) (company formed to exploit gold mine; wound up when discovered it
did not have title to mine).
21. See In re Baku Consolidated 0ilfields, [1944] 1 All E.R. 24 (Ch. 1943).
22. See In re Bleriot Mfg. Aircraft Co., 32 T.L.R. 253 (1916) (company wound up
when unable to purchase the particular aircraft business it had been formed to acquire).
23. Not all of the cases depend on it being impossible for the company to carry on the
business for which it was established. See generally In re Crown Bank, 44 Ch. D. 634 (1890)
(winding up was ordered where the company had abandoned business it was set up to carry
on and instead engaged in ultra vires business).
24. See Davis & Co. v. Brunswick, [1936] 1 All E.R. 299 (winding up not authorized
when business could possibly be made into a profit making concern); In re Langham Skating
Rink Co., 5 Ch. D. 669 (C.A. 1877) (winding up order not allowed since company could still
perform skating rink function); In re Suburban Hotel Co., 2 L.R.-Ch. 737 (1867) (winding
up against wish of majority shareholders not allowed for solvent company).
25. See In re Anglo-Continental Produce Co., [1939] 1 All E.R. 99 (Ch. 1938) (winding
up not just and equitable when substratum still exists and business can still be carried on).
26. See In re Taldua Rubber Co., [1946] 2 All E.R. 763 (winding up not appropriate
where sale of a particular estate did not affect carrying on other activities with the business
and the substratum was not destroyed); In re Kitson & Co., [1946] 1 All E.R. 435 (C.A.)
(winding up not appropriate since disposal of an acquired business is not necessarily a fail-
ure of the substratum).
27. 1918 A.C. 514.
28. Id. at 520-21. "The question whether or not a company can be wound up for fail-
ure of substratum is a question of equity between a company and its shareholders. The
question whether or not a transaction is ultra vires is a question of law between the com-
pany and a third party." Id. at 520.
1987] UNITED KINGDOM APPROACH

Appeal's decision in In re Yenidje Tobacco Co.2" In Yenidje, two sole

traders amalgamated their businesses by forming a limited company to
take over their two independent businesses.30 The articles of association
of the limited company provided for the two traders to have equal votes
at shareholders' and directors' meetings, and also provided that, if no
board resolution could be passed, the matter was to be resolved by arbi-
tration.3 1 Just over a year after incorporation, differences arose between
the parties.32 The parties' differences became so serious that intracorpora-
tion communications could only take place by way of the company secre-
tary.13 Although the business still continued and was highly profitable,
one of the traders petitioned for winding up.3 4 The Court of Appeal held
that the relationship between the parties was in substance a partnership
in the guise of a corporation, and the existence of circumstances that
would have justified the winding up of a partnership should induce the
court to wind up the corporation.3 5 The court reasoned that since mutual
trust and confidence are essential between partners, a complete break-
down in such trust would warrant the winding up of a partnership and
36
accordingly justified the winding up of the corporation.
The move away from the ejusdem generis rule of construction was
confirmed in a series of decisions in which the breakdown in the relation-
ship between the parties was attributable to the behavior of the majority
shareholder who treated the company as his own.3 Today it is likely that
such behavior would qualify as unfairly prejudicial conduct under section
459 of the Companies Act of 1985,38 entitling the petitioner to a more
appropriate remedy than a winding up order. But the existence of a mere
breakdown in the relationship between members of a company not arising
from any unfair behavior will not justify jurisdiction under section 459. A
winding up order is the only remedy, however inappropriate.3 9

29. [1916] 2 Ch. 426 (C.A.).

30. Id. at 427.
31. Id.
32. Id. at 427-28.
33. Id.
34. Id. at 428.
35. Id. at 429.
36. Id. at 430. Although disagreements between parties resulting in deadlock in the
affairs of a company had warranted a just and equitable winding up, the decision is based
on the significantly wider grounds of loss of trust and confidence.
37. Loch v. John Blackwood, 1924 A.C. 783 (P.C.) (W.I.) (majority treating minority in
oppressive manner); Thomson v. Drysdale, 1925 S.C. 311 (majority shareholder managing
company as solely his own business); Baird v. Lees, 1924 S.C. 83 (majority shareholder man-
aging company as solely his own business).
38. For a discussion of section 459 of the Companies Act of 1985, see infra notes 92-
196 and accompanying text.
39. In re R.A. Noble & Sons, 1983 B.C.L.C. 273.
 WAKE FOREST LAW REVIEW [Vol. 22

3. Failure to observe underlying understandingbetween members

The analogy with the dissolution of a partnership did not solve all of
the problems concerning when just and equitable winding up should be
ordered. One difficulty remaining was that some of the circumstances
which would dissolve a partnership (for example, the bankruptcy of a
partner)40 might be specifically provided for in the Companies Act or in
the articles of association of a company. It was this issue that provided
the background to the problem in Ebrahimi v. Westbourne Galleries
Ltd.,' 1 which is now the leading case on when a just and equitable wind-
ing up order will be granted.
Mr. Ebrahimi and Mr. Nazar set up a partnership together in 1945.42
In 1958 they converted the business into a limited company in which they
each held 500 shares and of which they were the first directors.43 Thereaf-
ter, Nazar's son was made a director and each shareholder transferred 100
shares to him. 4' The company prospered. 45 No dividends were paid be-
cause the profits were paid out as directors' remuneration to gain tax ad-
vantages .' In 1969 a disagreement arose between Nazar and his son on
one side, and Ebrahimi on the other. 47 Nazar and his son, who now held a
majority of the votes, passed an ordinary resolution removing Ebrahimi
from the board.' Both the Companies Act 9 and a provision in the com-
pany's own articles of association" provided that a director might at any
time be removed from office by an ordinary resolution. Neverthless,
Ebrahimi petitioned for just and equitable winding up.51 At the hearing
Nazar and his son gave an undertaking that dividends would be paid in
the future. 52 Even so, Justice Plowman held that because the parties had
begun the business on the basis that all should participate in manage-
ment, and since that was no longer the case, the company should be
wound up. 53 The Court of Appeal, however, reversed the decision." The
Court of Appeal held that when the removal of a director from office is in
accordance with both the Companies Acts and the company's own consti-
tution, as was the case in Ebrahimi,the removal cannot justify a winding

40. Partnership Act, 1890, 53 & 54 Vict., ch. 39, § 33. See In re K/9 Meat Supplies,
[1966] 1 W.L.R. 1112 (Ch.).
41. 1973 A.C. 360 (1972).
42. Id. at 373.
43. Id. at 360.
44. Id. at 374.
45. Id.
46. Id.
47. Id.
48. Id.
49. The provisions of this Act are now found in the Companies Act, 1985, Ch. 6, § 303.
50. In re Westbourne Galleries, 1973 A.C. at 374.
51. Id. Ebrahimi's petition alleged oppression and misconduct. Id.
52. Id. at 378.
53. In re Westbourne Galleries, [1970] 1 W.L.R. 1378 (Ch.).
54. In re Westbourne Galleries, 1971 Ch. 799 (C.A. 1970).
1987] UNITED KINGDOM APPROACH

up order, unless it is shown that the removal was in bad faith."

When the case reached the House of Lords they rejected the Court of
Appeal's narrow approach to the jurisdiction." Lord Wilberforce set out a
much broader approach in a key passage stating:
The words [just and equitable] are a recognition of the fact that a lim-
ited company is more than a mere legal entity, with a personality in law
of its own: that there is room in company law for recognition of the fact
that behind it, or amongst it, there are individuals, with rights, expecta-
tions and obligations inter se which are not necessarily submerged in
the company structure. That structure is defined by the Companies Act
and by the articles of association by which shareholders agree to be
bound. In most companies and in most contexts, this definition is suffi-
cient and exhaustive, equally so whether the company is large or small.
The "just and equitable" provision does not, as the respondents sug-
gest, entitle one party to disregard the obligation he assumed by enter-
ing a company, nor the court to dispense him from it. It does, as equity
always does, enable the court to subject the exercise of legal rights to
equitable considerations; considerations, that is, of a personal character
arising between one individual and another, which may make it unjust,
or inequitable, to insist on legal rights, or to exercise them in a particu-
lar way. It would be impossible, and wholly undesirable, to define the
circumstances in which these considerations may arise. Certainly the
fact that a company is a small one, or a private company, is not enough.
There are very many of these where the association is a purely commer-
cial one, of which it can safely be said that the basis of association is
adequately and exhaustively laid down in the articles. The superimposi-
tion of equitable considerations requires something more, which typi-
cally may include one, or probably more, of the following elements: (i)
an association formed or continued on the basis of a personal relation-
ship, involving mutual confidence - this element will often be found
where a pre-existing partnership has been converted into a limited
company; (ii) an agreement, or understanding, that all, or some (for
there may be "sleeping" members), of the shareholders shall participate
in the conduct of the business; (iii) restriction upon the transfer of the
members' interest in the company - so that if confidence is lost, or one
member is removed from management, he cannot take out his stake
and go elsewhere. It is these, and analogous, factors which may bring
into play the just and equitable clause, and they do so directly, through
the force of the words themselves. To refer, as so many of the cases do,
to "quasi-partnerships" or "in substance partnerships" may be conven-
ient but may also be confusing. It may be convenient because it is the
law of partnership which has developed the conceptions of probity,
good faith and mutual confidence, and the remedies where these are
absent, which become relevant once such factors as I have mentioned
are found to exist: the words "just and equitable" sum these up in the
law of partnership itself. And in many, but not necessarily all, cases

55. Id. at 802. The court stated that "It is for the petitioner to prove a lack of good
faith in the exercise of the power removing him, and the judge [below] held that there had
been no impropriety or lack of probity." Id. at 802.
56. Ebrahimi, 1973 A.C. at 360.
 WAKE FOREST LAW REVIEW [Vol. 22

there has been a pre-existing partnership the obligations of which it is

reasonable to suppose continue to underlie the new company structure.
But the expressions may be confusing if they obscure, or deny, the fact
that the parties (possibly former partners) are now co-members in a
company, who have accepted, in law, new obligations. A company, how-
ever small, however domestic, is a company not a partnership or even a
quasi-partnership and it is through the just and equitable clause that
7
obligations, common to partnership relations, may come in.

It is not the application of principles from the law of partnership

which give a member, excluded from participation in the management of
a company, a remedy. It is the existence of "some special underlying obli-
gation of his fellow member(s) in good faith, or confidence, that so long as
the business continues he shall be entitled to management participation,
an obligation so basic that, if broken, the conclusion must be that the
association must be dissolved."5 8 On the facts, the relationship between
Ebrahimi and Nazar was one which clearly imported such an underlying
obligation. Thus, despite the Companies Act, and the company's own con-
stitution authorizing removal of a director by ordinary resolution, the
winding up order was restored. 9
The Ebrahimidecision has been applied subsequently in a number of
cases involving exclusion from management, 0 including cases in which
the petitioner has remained a director while effectively being excluded
from management participation.6 1 Perhaps the most notable application
is in In re A. & B.C. Chewing Gum Ltd.6 2 In this case, a shareholder
owning one third of the shares was entitled, under the articles, to appoint
a director.63 The board decisions were to be unanimous.6 When the two
shareholders owning the remaining two thirds of the shares refused to
accept the minority's nominee as director, it was held to be just and equi-
table to wind the company up.65 The notable aspect of the case is that an
injunction would have been available to enforce the petitioner's rights,

57. Id. at 379. While bearing in mind the warning of Lord Wilberforce against equat-
ing companies with partnerships, the term "quasi-partnership" will be used in this article to
refer to companies where understandings between the parties as to the exercise of legal
rights are possible.
58. Id. at 380.
59. Id. at 388.
60. The House of Lords also specifically approved the earlier decision in In re Lundie
Brothers Ltd., [1965] 1 W.L.R. 1051 (Ch.).
61. In re A Company (No. 002567 of 1982), [1983] 1 W.L.R. 927 (Ch.) (winding up
petition denied when "quasi-partner" was excluded from directorship and participation pur-
suant to proposed tender offer for his shares; deemed to have unreasonably refused efforts
to determine fair price for shares); In re North End Motels, [1976] 1 N.Z.L.R. 446 (Sup. Ct.
1976). The irritating reference to cases under the anonymous "Re A Company" arises when
the petition has not been advertised. In order to distinguish one "Re A Company" from
another the petition number is added.
62. [1975] 1 W.L.R. 579 (1974).
63. Id. at 581.
64. Id. at 582.
65. Id. at 579.
1987] UNITED KINGDOM APPROACH

although the breakdown in the relationship between the parties was such
that winding up was the more realistic solution.66
It remains to be seen what influence Lord Wilberforce's judgment
has in circumstances when just and equitable winding up is sought on
grounds other than exclusion from management. Logically, the judgment
fits in well with the loss of substratum cases, many of which can be ex-
plained on the basis that an underlying understanding between the par-
ties as to the scope of the company's business was broken by continuing
to trade under the changed circumstances. Likewise, loss of confidence
cases can be explained on the basis that there was an understanding be-
tween the parties that mutual trust and confidence were necessary to
their joint participation and that if they disappeared, then the association
67
should be terminated.

D. Effect of an Alternative Remedy Being Available to the Petitioner

In 1945, the Cohen Committee reported that courts often refused to
order just and equitable winding up if they felt that the petitioner had a
suitable alternative remedy.68 As one of their proposals to extend the pro-
tection of minority shareholders, the Committee recommended that the
court's discretion in such situations should be fettered slightly.6 9 Accord-
ingly, the Companies Act of 1948 introduced a requirement that when a
winding up order was just and equitable and when the petitioner had a
suitable alternative remedy, the court would have discretion to refuse an
order only if the petitioner was acting unreasonably in seeking to 70have
the company wound up instead of pursuing the alternative remedy.
The provision had not attracted much attention in reported cases7 1

66. See Case and Comment, Winding Up on the Just and Equitable Ground - Stay
of Winding-up Order, 34 CAMBRIDGE L.J. 209 (1975).
67. Exclusion from management often occurs together with mutual loss of confidence.
See In re A. & B.C. Chewing Gum, [1975] 1 W.L.R. 579 (Ch. 1974) (wrongful exclusion of
minority beneficial shareholders following minority's refusal to be represented by director of
majority's choosing: subsequent refusal by majority to recognize minority's choice of direc-
tor); In re North End Motels, [1976] 1 N.Z.L.R. 446 (Sup. Ct. 1976). The recent decision in
In re Zinotty Properties, [1984] 1 W.L.R. 1249 (Ch.), illustrates exclusion from management,
loss of confidence, and loss of substratum in the same case.
68. REPORT OF THE COMMITTEE ON COMPANY LAW AMENDMENT, 1945, CMD. No. 6659,
para. 60.
69. Id. paras. 60, 152.
70. Companies Act, 1948, 11 & 12 Geo. 6, ch. 38, § 225(2). This section is now found in
Companies Act, 1985, ch. 6, § 520(2).
71. In Charles Forte Invs. v. Amanda, 1964 Ch. 240, 255-63 (C.A. 1963), the court held
that a shareholder had grounds to complain about the wrongful exercise of a director's dis-
cretionary refusal to register share transfers and that the shareholder should seek rectifica-
tion of the share register under section 359 of the Companies Act of 1985, rather than peti-
tion for just and equitable winding up. This case is probably still good law when the
complaint involves a breach of the Companies Act, the company's articles, or the directors'
fiduciary duties. Since the decision in Ebrahimi, however, if the complaint concerns a
breach of an understanding of how the power to refuse to register transfers should be exer-
cised, then that is probably not justiciable under section 359 and a winding up petition
would be appropriate. In Bryanston Finance v. De Vries (No. 2), 1976 Ch. 63 (C.A. 1975),
 WAKE FOREST LAW REVIEW [Vol. 22

until Justice Vinelott's decision in In re A Company (No. 002567 of

1982) .72 The case involved a shareholder in a quasi-partnership company
who was excluded from participation in management. 73 The shareholder
sought just and equitable winding up, relying upon the precedent of
Ebrahimi v. Westbourne Galleries Ltd.7 The respondents argued that
the petitioner was entitled to a remedy under section 75 of the Compa-
nies Act of 1980. 75 The question raised by the respondent's argument is
whether section 75 covers matters that affect members in their non-mem-
ber capacity. In this case, the petitioner was affected principally as direc-
tor.7 6 However, Justice Vinelott did not reach the issue of section 75's
coverage because he held that the respondents' offer to purchase the peti-
tioner's shares constituted an alternative remedy, and since that offer was
fair the petitioner had acted unreasonably in refusing the offer."' Since
the effect of a just and equitable winding up order is to give the peti-
tioner a bargaining counter with which to persuade a reluctant respon-
dent to agree to a sensible settlement, 78 treating an offer of settlement as
an alternative remedy for the purposes of section 520(2) is in line with
encouraging negotiated settlements.

E. The Impact of the "Just and Equitable" Principle Outside of an

Application for Just and Equitable Winding Up

The decision in Ebrahimi v. Westbourne GalleriesLtd.7 9 has lead the

courts to protect minority shareholders more often. This change has come
about because of the courts' willingness to apply Lord Wilberforce's dicta
about subjecting the exercise of legal rights to equitable considerations so
as to give effect to the parties' underlying understandings as to how legal
rights are to be exercised. Remarkably, the most important applications
have occurred not in the context of petitions for just and equitable wind-

the Court of Appeals held that an investigation by inspectors, appointed by the Department
of Trade and Industry, was an unsuitable alternative remedy.
72. [1983] 1 W.L.R. 927 (Ch.).
73. Id. at 929.
74. 1973 A.C. 360 (1972).
75. A Company (No. 002567 of 1982), [1983] 1 W.L.R. at 933. Section 75 is now found
in Companies Act, 1985, ch. 6, §§ 459-61. This is the obvious alternative remedy that might
be available to a petitioner for just and equitable winding up. However, it has not led to any
direct discussion of section 520(2) because petitioners for just and equitable winding up
almost invariably present petitions under section 459 also. A petitioner complaining of
wrongful refusal to register a share transfer would probably petition under section 459 as
well. For a discussion of actions for refusal to register share transfers, see supra note 71.
76. For a discussion of whether the petitioner must be prejudiced qua member, see
infra notes 151-72 and accompanying text.
77. A Company (No. 002567 of 1982), [1983] 1 W.L.R. at 927, 933H.
78. See, e.g., In re Crown Bank, 44 Ch. D. 634 (1890) (after Justice North indicated
intention to make winding up order majority bought out minority and by consent petition
dismissed). See also In re Lundie Bros., [1965] 1 W.L.R. 1051 (Ch.) (after winding up order
made, settlement reached and all parties, including petitioner, requested rescission of wind-
ing up order).
79. 1973 A.C. 360 (1972).
1987] UNITED KINGDOM APPROACH

ing up but in the context of plaintiffs seeking declarations and injunc-

tions. While an application for just and equitable winding up clearly gives
the court jurisdiction to apply equitable considerations, it is not obvious
that there is a similar jurisdiction if there is no such application."
In fact, in Bentley-Stevens v. Jones,8 the court refused to subject
the exercise of legal rights to equitable considerations outside of an appli-
cation for just and equitable winding up. A minority shareholder was
threatened with removal from office as a director in circumstances which
would quite possibly warrant just and equitable winding up if he were in
fact removed. 82 The shareholder asked the court to prevent his removal
by injunction.8 3 Justice Plowman refused to issue an injunction since
Ebrahimi does not suggest "that the plaintiff is entitled to an injunction
to interfere with the defendant company's statutory right to remove the
plaintiff from its board."'"
Other judges, however, have either ignored or rejected the argument
that the jurisdiction to subject the exercise of legal rights to equitable
considerations depends on there being an application for just and equita-
ble winding up. Justice Templeman in Pennell v. Venida Investments
Ltd.s5 granted an injunction giving effect to an understanding between
two shareholders that there should be no increase in the share capital
except with the consent of both parties. Then, in Clemens v. Clemens
Bros."' an aunt and her niece held 55% and 45%, respectively, of the
shares in a company.87 The aunt, as majority shareholder, passed resolu-
tions authorizing the issuance of shares to an employees' trust and to four
directors who, until then, held no shares.8 The effect of the share issu-
ance would have been to reduce the niece's holding to 24.9% and deprive
the niece of the prospect of ultimately acquiring her aunt's shares under a
pre-emption clause in the articles. 9 In these circumstances Justice Foster
set aside the resolutions.9 0 Although the exact basis of his decision is not
clear, it seems likely that he subjected the exercise of legal rights to equi-
91
table considerations.

80. The issue has attracted less academic controversy than might have been expected.
But compare Rider, PartnershipLaw and Its Impact on "Domestic Companies," 38 CAM-
BRIDGE L.J. 148, 165-66 (1979) (contending that principles laid by Ebrahimi are of wider
application than simply winding-up petition or petition based on alleged oppression) with
Burridge, Wrongful Rights Issues, 44 Mon. L. REv. 40, 57-60 (1981) (questioning Dr. Rider's
view of scope of application of Ebrahimi principles).
81. Bentley-Stevens v. Jones, [1974] 1 W.L.R. 638 (Ch.).
82. Id. at 639.
83. Id. at 639D.
84. Id. at 641C-D.
85. (Ch., July 25, 1974). This unreported case is discussed at length in Burridge, supra
note 80.
86. [1976] 2 All E.R. 268 (Ch.).
87. Id. at 270.
88. Id. at 274.
89. Id. at 276.
90. Id. at 281-82.
91. Id. at 282.
 WAKE FOREST LAW REVIEW [Vol. 22

Many of the fact patterns in which the courts were likely to be asked
to subject the exercise of legal rights to equitable considerations, outside
of an application for just and equitable winding up, have qualified since
1980 to be petitions under sections 459-461 of the Companies Act of 1985.
II. COURT ORDERS UNDER SECTIONS 459-461 OF THE COMPANIES ACT OF

1985
A. Background to the Legislative Provisions
To understand the circumstances that led to what are now sections
459-461 of the Companies Act of 1985, one must appreciate the highly
restricted scope of the just and equitable winding up remedy prior to the
House of Lords' decision in Ebrahimi v. Westbourne Galleries Ltd.,2 It
had been held in In re Cuthbert Cooper and Sons Ltd. 3 that even a
quasi-partnership company depended on the contractual and statutory
rights of the parties to determine whether a court could dissolve the asso-
ciation.9 ' Accordingly, when two brothers who together held 50% of the
shares in a company refused to register a transfer of the other 50% from
the estate of their father into the names of their three younger brothers
as his personal representatives, the court refused just and equitable wind-
ing up because the articles gave the directors unfettered discretion to re-
fuse to register transfers.9 5 In very similar circumstances, a challenge to a
director's refusal to register a transfer, as a breach of fiduciary duty, also
failed.96 To address this problem, and also the problem of directors taking
excessive remuneration, the Cohen Committee9 7 recommended not only a
relaxation of the circumstances in which winding up might be ordered
despite the existence of alternative remedies, but also "that the Court
should have, in addition, the power to impose on the parties to a dispute
whatever settlement the court considers just and equitable."9' 8 It was this
recommendation that led to the introduction of section 210 of the Com-
panies Act of 1948.01

92. 1973 A.C. 360 (1972).

93. 1937 Ch. 392.
94. Id.
95. Id.
96. In re Smith and Fawcett, 1942 Ch.304 (C.A.).
97. REPORT OF THE COMMrIrEE ON COMPANY LAW AMENDMENT, 1945, CMD.No. 6659,
paras. 58-60.
98. Id. para. 60.
99. The main provisions of section 210 were as follows:
(1) Any member of a company who complains that the affairs of a company
are being conducted in a manner oppressive to some part of the members (in-
cluding himself) . . .may make an application to the court by petition for an
order under this section. (2) If on any such petition the court is of opinion-(a)
that the company's affairs are being conducted as aforesaid; and (b) that to wind
up the company would unfairly prejudice that part of the members, but other-
wise the facts would justify the making of a winding up order on the ground that
it was just and equitable that the company should be wound up; the court may,
with a view to bringing to an end the matters complained of, make such order as
19871 UNITED KINGDOM APPROACH

Unfortunately, section 210 was so beset with prerequisite conditions

to court intervention that it proved to be almost totally ineffective. 100
Chief amongst these conditions was the requirement that the petitioner
first establish a right to just and equitable winding up before the court
could consider an "alternative remedy."' 10 1 One of the situations the Co-
hen Committee had been most concerned with, that illustrated by In Re
Cuthbert Cooper and Sons Ltd.,' 0 2 could not fall within section 210 be-
cause it had been held that those precise circumstances did not warrant
just and equitable winding up. Another concern of the Cohen Committee,
in recommending an alternative remedy, was that the oppressive conduct
might have resulted in there being no assets left to make winding up
worthwhile, because members petitioning for winding up must have a
tangible interest in the outcome. 0 3 The very fact that the oppressive con-
duct had made the company insolvent would exclude the member's right
to petition for winding up and the right to the alternative remedy.104
Accordingly, in 1962 the Jenkins Committee recommended various
changes to section 210.105 After an inordinately long gestation period,
these changes were realized in sections 459-461 of the Companies Act of
1985 by the repeal of section 210 and the incorporation of section 75 of
the Companies Act of 1980.106

it thinks fit, whether for regulating the conduct of the company's affairs in fu-
ture, or for the purchase of the shares of any members of the company by other
members of the company or by the company and, in the case of a purchase by
the company, for the reduction accordingly of the company's capital, or
otherwise.
Companies Act, 1948, 11 & 12 Geo. 6, ch. 38, § 210.
100. Only two successful petitions were reported during section 210's thirty-two year
existence. Scottish Co-operative Wholesale Society v. Meyer, 1959 A.C. 324 (1958) (majority
diverting assets away from company to themselves); In re H.R. Harmer, [1959] 1 W.L.R. 62
(C.A.) (founding shareholder disregarding rights and interests of new shareholders and con-
tinuing to treat company as his own). See generally Afterman, Statutory Protectionof Op-
pressed Minority Shareholders:A Model for Reform, 55 VA. L. REV. 1043 (1969); Rajak, The
Oppression of Minority Shareholders, 35 MOD.L. REV. 156, 163-70 (1972).
101. Companies Act, 1948, 11 & 12 Geo. 6, ch. 38, § 210(2)(b).
102. 1937 Ch. 392. See also REPORT OF THE COMMITTEE ON CoMPANY LAW AMENDMENT,
1945, Chin. No. 6659, para. 58 (on death of shareholder, directors refused to register transfer
to outsiders, putting pressure on executors to sell to insiders at low price).
103. For a discussion of the requirement that members have a tangible interest in the
outcome, see supra note 17.
104. Re Bellador Silk, [1965] 1 All E.R. 667 (Ch.).
105. REPORT OF THE COMPANY LAW CohimrrrE, 1962, CMND. No. 1749, paras. 199-212.
Provisions based on section 210 were adopted in many other jurisdictions. Most have been
amended in one way or another, so there is now a variety in the scope of protection they
provide. See Australian Companies Act, 1981, § 320; Business Corporations Act, § 234 (Can.
1975); Companies Code, § 218 (Ghana 1961); Companies Act, § 209 (N.Z. 1955) (as amended
by the Companies Amendment Act § 11); Companies Act, § 181 (Singapore 1965). For an
excellent discussion which, although concentrating on the New Zealand position, draws at-
tention to the differences in each jurisdiction, see Shapira, Minority Shareholders Protec-
tion - Recent Developments, 10 N.Z.U.L. REv. 134 (1982). See also Afterman, supra note
100.
106. The main provision of the Companies Act of 1985, section 459(1), provides:
 WAKE FOREST LAW REVIEW [Vol. 22

B. Who May Petition?

Foremost among the changes in 1980 was the repeal of the require-
ment that a petitioner show an entitlement to just and equitable winding
up. The new remedy is no longer an alternative to just and equitable
winding up, but rather an independent remedy standing alone. Members
who allege that they have suffered unfair prejudice may petition, whether
or not they have a tangible interest in the outcome."0 7 In addition, peti-
tioning members do not need "to come with clean hands," as is necessary
in seeking just and equitable winding up. 108 However, the petitioner's
conduct may still be relevant in deciding whether he has suffered any
unfair prejudice or in deciding on the appropriate remedy. 0 9
Another change recommended by the Jenkins Committee was that it
be made clear that "personal representatives and others (e.g., trustees in
bankruptcy) to whom shares are transmitted by operation of law, but who
are not registered as members" are able to petition.'1 0 This change is now
reflected in section 459(2), which allows the presentation of petitions by
"a person who is not a member of the company but to whom shares in the
company have been transferred" or transmitted by operation of law."' 1 2
Finally, the Department of Trade and Industry may also present peti-
tions, following administrative procedures.' 13 These petitions, however,
will invariably be on the grounds of public interest and thus fall outside
the scope of this article.

C. What Constitutes "Unfair Prejudice"?

Apart from removing the link with just and equitable winding up, a
number of other liberalizing changes were instituted in 1980 by section
459. Whereas section 210 had required a continuing course of conduct,

A member of a company may apply to the court by petition for an order

under this part on the ground that the company's affairs are being or have been
conducted in a manner which is unfairly prejudicial to the interests of some part
of the members (including at least himself) or that any actual or proposed act or
omission of the company (including an act or omission on its behalf) is or would
be so prejudicial.
Companies Act, 1985, ch. 6, § 459(1).
107. For a discussion of the grounds upon which a court may refuse a winding up
order, see supra note 70 and accompanying text. This aspect of Re Bellador Silk is, there-
fore, no longer authoritative.
108. Ebrahimi v. Westbourne Galleries Ltd., 1973 A.C. 360, 387 (1972).
109. In re London School of Electronics, 1986 Ch. 211 (1985).
110. REPORT OF THE COMPANY LAW COMMITTEE, 1962, CMND. No. 1749, para. 209.
111. Section 459(2) requires at least that a proper instrument of transfer has been
executed and delivered to the transferee or the company in respect of the shares in question.
It is not sufficient that there should be an agreement for transfer. In re A Company (Moss-
main Ltd.), 1986 B.C.L.C. 391.
112. The transmittal requirement "means some act in the law by which the legal es-
tate passes even though there be some further act (such as registration) to be done." The
mere allegation of a constructive trust does not suffice. In re A Company (No. 007828 of
1985) (Ch. Dec. 11, 1985) (Harman, J.).
113. Companies Act, 1985, ch. 6, § 460.
1987] UNITED KINGDOM APPROACH

section 459 covers not only the conduct of the company's affairs but also
any single act or omission, whether past or proposed.114 Similarly, where
section 210 had been interpreted to require that relevant conduct still be
continuing at the date of the petition, section 459 expressly covers past
conduct. 115 The most obvious change, however, is that the conduct need
no longer be "oppressive," as required by section 210, but need only be
"unfairly prejudicial."1"' The courts' interpretation of this phrase wil de-
termine the scope of the jurisdiction that section 459 confers. As previ-
11 7
ously emphasized, the section requires that the conduct be "unfair.
Thus, in In re R & A Noble and Sons (Clothing) Ltd.,""8 the court did
not have jurisdiction under section 459 when two shareholders in a quasi-
partnership suffered a complete loss of confidence which did not result
from unfair behavior by either side. 9 The court could still make an order
for just and equitable winding up since that jurisdiction only required
that the relationship between the parties have broken down, from
whatever cause. However, an order that one party be bought out by the
other or by the company, which the court can make under section 459,
might well have been a more appropriate remedy.
Although the conduct must be unfair, the court in In re R & A Noble
and Sons emphasized that the test determining what is unfair is objec-
tive. 120 It does not, therefore, require any intention to harm the interests
of the petitioner, nor any proof of bad faith on the part of those who
control the affairs of the company. After some indecision by the courts, it
now appears that the petitioner need not show a reduction in the value of
his shareholding.12 1 It also seems clear that interests beyond legal and
constitutional rights are relevant factors when considering unfair
prejudice to petitioners. 12' Now, if directors in a quasi-partnership com-
pany refuse to register a transfer of shares, in contravention of an under-
standing or expectation as to how that power would be exercised, such
refusal could constitute both unfair prejudice and grounds for just and
23
equitable winding up.
It also seems highly likely that cases such as Clemens v. Clemens

114. Id. § 459.

115. Id.
116. Id.
117. Id.
118. 1983 B.C.L.C. 273.
119. Id. at _.
120. Id. at 290-91.
121. Id. at 291.
122. In re Posgate & Denby Ltd., FINANCIAL TnMEs, June 20, 1986. This reflects the
intention of the Jenkins Committee. REPORT OF THE COMPANY LAW COMMirrEE, 1962, CAIND.
No. 1749, paras. 203, 204.
123. If the refusal to register a share transfer is in breach of a provision in the Compa-
nies Act or in the company's articles of association, the aggrieved member may in addition
seek rectification of the share register under section 359 of the Companies Act of 1985. For a
discussion of section 359 actions, see supra note 71.
 WAKE FOREST LAW REVIEW [Vol. 22

Bros.1 24 and Pennell v. Venida Investments Ltd.125 would now take the
form of petitions under section 459. If so, this development will weaken
the criticism that these decisions involve the application of just and equi-
table considerations outside of an application for just and equitable wind-
ing up.' 28 It also appears quite possible that behavior like that of the ma-
jority shareholders in Greenhalgh v. Arderne Cinemas Ltd. 127 would now
fall within section 459. In Greenhalgh, the holders of the 50 pence nomi-
nal value shares in the defendant company controlled 60% of the total
votes in the company. 12 The plaintiff, Mr. Greenhalgh, who had previ-
ously invested considerable sums in the company and had been issued a
block of shares with a nominal value of 10 pence each, held 40% of the
total votes.1 29 The majority then voted to subdivide each 50 pence share
by five, a move which reduced the plaintiff's voting strength from 40% to
8%. 11° Mr. Greenhalgh challenged the subdivision on the grounds that it
was a variation of the class rights of the 10 pence shareholders."' Under
the articles of association, this would require the consent of the holders of
the 10 pence shares. 13' His challenge failed, however, because the court
held that there was no variation to the rights of the holders of the 10
pence shares, just a variation in the effect or enjoyment of rights that the
clause in the articles did not cover.13 3 Almost certainly, such conduct by
the majority would now constitute unfair prejudice to Mr. Greenhalgh.
The majority in Greenhalgh were able, after diluting Mr. Green-
halgh's stake, to pass special resolutions." 4 They soon passed one to alter
the articles of association." 5
The existing articles contained a pre-emp-
tion clause giving members first refusal whenever a member wished to sell
shares."16 When the company received a takeover bid from a non-mem-
ber, the clause in the articles was amended to allow members to sell to
outsiders who were approved by an ordinary resolution." 7 Although the
alteration was drafted in neutral terms, the effect was to allow the offer,
which the majority supported, to succeed, while depriving Mr. Green-
halgh of his prospect of ultimately gaining control of the company. The

124. [1976] 2 All E.R. 268 (Ch.).

125. (Ch. July 25, 1974). This case is unreported but discussed at length in Burridge,
supra note 80.
126. For a discussion of the court's jurisdiction to apply equitable considerations, see
supra note 80 and accompanying text.
127. [1946] 1 All E.R. 512 (C.A.). The facts are more clearly stated in the judgment of
the court below, Greenhalgh v. Arderne Cinemas Ltd., [1945] 2 All E.R. 719, 720-22 (Ch.).
128. [1945] 2 All E.R. at 720-22.
129. Greenhalgh, [1946] 1 All E.R. at 513.
130. Id. at 516. This could be done by ordinary resolution under the equivalent of
Companies Act, 1985, ch. 6, § 121.
131. Greenhalgh, [1946] 1 All E.R. at 515.
132. Id.
133. Id. at 518.
134. Id. at 512. A special resolution requires approval by 75% of the votes cast.
135. Greenhalgh v. Arderne Cinemas Ltd., 1951 Ch. 286, 289 (C.A. 1950).
136. Id. at 287-88.
137. Id. at 289.
1987] UNITED KINGDOM APPROACH

court of appeal rejected Mr. Greenhalgh's challenge that the alteration

was not "bona fide in the interests of the company as a whole. '138 It is
now likely that future challenges to the alteration of the articles of associ-
ation will be brought under section 459, and it seems equally likely that
Mr. Greenhalgh would obtain some sort of remedy today, given the
court's disposition towards protection of minority shareholders.

D. Must the Conduct Affect Only Some Members?

One of the phrases in section 210, which was not changed in 1980,
was the reference to "some part of the members."' 139 The problem with
the phrase is, as Professor Gower has suggested,' 40 that the courts may
interpret it so as to restrict section 459 to cases where only some of the
members, as opposed to all the members, are prejudiced. There seems no
linguistic reason why the phrase should be limited to only some part of
the members. The phrase could instead be read to mean at least some
part of the members, and thus encompass a situation in which all the
members were equally prejudiced. The emphasis would then be on the
word "members" to distinguish it from a situation in which, for example,
4
only creditors or employees are prejudiced.1 1
Professor Gower has now modified his view, " but his earlier view
has already received judicial endorsement. In In re Carrington Viyella
Plc.,'4 3 a minority shareholder claimed that a service agreement, agreed to
by the directors, was excessively generous and, thus, the directors, were in
breach of their fiduciary duty to the company. 4 One of Justice Vinelott's
reasons for dismissing a challenge to the service agreement under section
459 was that "the breach, if any, would affect all shareholders equally. To
succeed in a petition under section [459], however widely construed, the
petitioners have to show conduct which is unfairly prejudicial to part of
45
the shareholders.'
In fact, there are many cases in which breaches of duty to the com-
pany, and thus to all the shareholders, have nevertheless resulted in or-
ders under section 459 or its predecessors. 146 These are cases in which

138. Id. at 292. For an excellent account of the saga of Mr. Greenhalgh's battles, see L.
GOWER, GOWER'S PRINCIPLES OF MODERN COMPANY LAW, 624-26 (4th ed. 1979).
139. Companies Act, 1948, 11 & 12 Geo. 6, ch. 38, § 210.
140. See L. GOWER, supra note 138, at 670.
141. Compare Business Corporations Act, ch. 33, § 234 (Can. 1975). The Act refers to
"the interests of any security holder, creditor, director or officer." Id.
142. See generally L. GOWER, GOWER'S PRINCIPLES OF MODERN COMPANY LAW (Supp.
1980).
143. FINANCIAL TIMES, Feb. 4, 1982.
144. Id.
145. Id.
146. See Scottish Co-operative Wholesale Soc'y v. Meyer, 1959 A.C. 324 (1958) (major-
ity diverting assets away from company to themselves); Whyte, petitioner 1984 S.L.T. 330
(proposed substitution of director that would create a majority of the board of directors
with personal interest in current corporate litigation); In re London School of Elecs., 1986
Ch. 211 (majority shareholder treating corporate assets as own property); Re A Company
 WAKE FOREST LAW REVIEW [Vol. 22

controlling shareholders have diverted assets of the company to them-

selves. Such action, while constituting a breach of duty to the company,
can be regarded as prejudicing part of the members since those members
who take the assets benefit; only the members who do not take the assets
are prejudiced. It is this context that has caused Professor Gower's
change of mind. He is still doubtful "whether, when the only complaint is
that the negligence of the directors has harmed the company and all its
members without benefiting the defendants, a petition under section
[459] could succeed."1 7 As Professor Gower points out, it is in such a
situation, when the directors have been negligent but have not benefited
themselves, that the rule in Foss v. Harbottle"s prevents any action being
brought by the minority to enforce the company's remedy"' and a rem-
edy under section 459 would be most desirable. 150 It is submitted that
interpreting the phrase "some part of the members" as preceded by the
phrase "at least" instead of "only" would enable the court to have juris-
diction under section 459, in situations where all of the members were
prejudiced. It is still open to the courts to adopt such an interpretation.

E. Must the Petitioner Be Prejudiced Qua Member?

In Ebrahimi v. Westbourne Galleries Ltd.,'15 the most appropriate

remedy would have been for the court to order the majority to buy out
the shares of the minority or vice-versa.' 5 ' The facts, however, did not
enable the case to be brought within section 210 because the court ac-
cepted the view that only matters which affected members in their capac-
ity as members could fall within section 210.15 3 Since the petitioner's
complaint concerned his removal as a director, the facts did not fall
within the jurisdiction of section 210.11 The reference to "members" was

(No. 002612 of 1984) (C.A. Mar. 25, 1986) (majority shareholder diverting corporate assets
to own use).
147. See L. GOWER, supra note 142, at 670.
148. 67 Eng. Rep. 189 (1843). In Foss, several shareholders commenced action against
the directors alleging fraud and misappropriation of company property and seeking winding
up. The court held that the corporate entity was entitled to redress, but the individuals
could not seek dissolution of the company. Id.
149. See, e.g., Pavlides v. Jensen, 1956 Ch. 565, in which a minority shareholder al-
leged that the directors had negligently sold an asset worth 1,000,000 for 180,000. Id. at 567.
That court held that a mere allegation of negligence does not come within the derivative
action exception to the rule in Foss. Id. at 569. If the negligently undervalued sale is to the
directors themselves, the exception applies. Daniels v. Daniels, 1978 Ch.406 (1977).
150. It may be objected that this will make the courts arbiters of business judgments,
but any negligence must be such as to prejudice the shareholders and warrant a remedy.
Mere careless inefficiency will not suffice. In re Five Minute Car Wash Service, [1966] 1
W.L.R. 745 (Ch. 1965).
151. 1973 A.C. 360 (1972).
152. Id. at 385.
153. Id. at 374.
154. A petition under the Companies Act, 1948, 11 & 12 Geo. 6, ch. 38, § 210, was
dismissed at first instance and not appealed. In re Westbourne Galleries Ltd., [1970] 1
W.L.R. 1378 (Ch.). See also Elder v. Elder and Watson, 1952 S.C. 49.
19871 UNITED KINGDOM APPROACH

retained in the 1980 revision of section 210; therefore, arguably the re-
moval from office as director still does not fall within section 459.
There was, however, a slight change to the wording in 1980. Where
section 210 had referred merely to "some part of the members", section
75 refers to "the interests of some part of the members."' 5 5 In In Re A
Company (No. 002567 of 1982),151 Justice Vinelott saw "considerable
force" in the counsel's submission that the phrase "interests of" extended
the section to cover the unfair exclusion of a minority shareholder from
the management of a company in breach of an understanding that he
should so participate; but, as he had no need to decide the question, he
did not do so. 157 Likewise, Justice Hoffman, although accepting in princi-
ple that the section must be limited to conduct unfairly prejudicial to the
interests of members as members, 5 ' has stated that:

its application must take into account that the interests of a member
are not necessarily limited to his strict legal rights under the constitu-
tion of the company .... The member's interests as a member who
has ventured his capital in the company's business may include a legiti-
mate expectation that he will continue to be employed as a director and
his dismissal from that office and exclusion from the management of
the company may therefore be unfairly prejudicial to his interests as a
member.1 9

The question of whether section 459 requires the petitioner to be

prejudiced qua member also has arisen in a very different context. In In
re A Company (No. 004475 of 1982),1s 0 the essential complaint of the pe-
titioners was that their personal circumstances required that they realize
their investment in the company.' 6 ' None of the other members wished to
purchase the petitioners' shares, and though they were free under the ar-

155. Companies Act, 1980, ch. 22, § 75.

156. [1983] 1 W.L.R. 927. Justice Vinelott's remarks were made in the context of
whether the petitioner had a remedy under the equivalent of section 459. If the petitioner
had a remedy, the question would be whether, under the predecessor to section 520(2), the
petitioner was unreasonably seeking to have the company wound up instead of pursuing
that other remedy. A similar argument was raised in Coulon Sanderson & Ward v. Ward,
1986 P.C.C. 57, in which Justice Slade stated, "Suffice it to say that in so far the defendant's
complaints are based on Westbourne Galleries grounds, I am at present by no means satis-
fied that they could be brought within the ambit of section 459(1)." Id. at 72.
157. In re A Company (No. 002567 of 1982), [1983] 1 W.L.R. at 933.
158. In re A Company (No. 00477 of 1986), 1986 B.C.L.C. 376, 378-79. See also In re
XYZ, FINANCIAL TiMEs, Aug. 12, 1986.
159. A Company (No. 00477 of 1986), 1986 B.C.L.C. at - A similar approach was
taken by the Supreme Court of British Columbia in Diligenti v. RWMD Operations
Kelowna, [1976] 1 B.C.L.R. 36, a case under the British Columbia Companies Act, 1973, ch.
18, § 221, in which the wording also refers to members. The case is noted at 11 BRaIT. COLUM.
U.L. REV. 326 (1977) and discussed in Shapira, supra note 105, at 147-149.
160. 1983 Ch. 178 (1982).
161. Id. at 182. The petitioners were the personal representatives of a husband and
wife who had died within a short time of each other. The shareholding was the only major
asset in the estate and the petitioners wished to realize it to pay for the maintenance and
education of the orphaned children. Id.
 WAKE FOREST LAW REVIEW [Vol. 22

ticles of association to sell to outsiders, a 14% minority stake in a family

company would be priced at a considerable discount to its asset value.' 62
Therefore, the petitioners asked the company to buy their shares and ar-
gued that the company's refusal to do so unfairly prejudiced them.'" The
judge held, however, that section 459 "is to be construed as confined to
'unfair prejudice' of a petitioner 'qua member;' or put in another way, the
word 'interests' in section 459 is confined to 'the interests of the peti-
tioner as a member.' "16 Bankruptcy represents a very different situation,
in which a shareholder would also want to realize his investment for rea-
sons related to his personal circumstances, rather than to membership of
the company. 1 5 Again, the reason for preferring an order that the com-
pany purchase the shares is the hope that the company might be ordered
to pay an amount nearer to the asset value for the shares, a value which
could not be obtained in a sale to an outsider.' 6
Even if the United Kingdom courts do accept the proposition that
section 459 covers matters affecting members in a capacity other than as
members, it seems unlikely that the personal circumstances of the peti-
tioners in In re A Company (No. 004475 of 1982),67 In the Moot,'6 8 or In
re K/9 Meat Supply Gullford Ltd. 6 9 would justify a conclusion that they
had been unfairly prejudiced. In New Zealand the equivalent provision
expressly covers matters affecting a member "whether in his capacity as a
member or in any other capacity." ' 7 0 Nevertheless, it has been held that a
shareholder, with a one third stake in a family business, who complained
that the conservative dividend policy was depriving him of income, was
not entitled to an order that the other shareholders buy up his stake.''
The problem for New Zealand and the United Kingdom, if section 459 is
interpreted to cover non-membership interests, is determining which non-
membership interests to protect. A starting point for the debate may be
the test proposed by Shapira:

162. Id. at 183.

163. Id. at 184.
164. Id. at 189.
165. Upon bankruptcy all of the bankrupt's assets, including any stock shares, vest by
operation of law in his trustee. Insolvency Act, 1985, ch. 65, § 153. The trustee thus can
present a petition under section 459(2). Companies Act, 1985, ch. 6, § 459(2).
166. Winding up would be a way of obtaining asset value. This is the explanation of In
re K/9 Meat Supplies, [1966] 1 W.L.R. 1112 (Ch.), in which a bankrupt member, instructed
by his trustee, petitioned for just and equitable winding up. Id. at 1113. The petition was
denied because the corporate constitution provided for what was to happen if a shareholder
became bankrupt and there was no room for any understanding contradicting that provi-
sion. Id. at 1118-19. The model form articles of association still contain such a provision,
Companies Regulations, S.I. 1985, No. 802, table A, regulations 30-31, and even after
Ebrahimi, 1973 A.C. at 360, it would be unusual to find an understanding between the par-
ties covering the bankruptcy of a member.
167. 1983 Ch. at 178.
168. FINANCIAL TIMES, Feb. 4, 1982.
169. [19661 1 W.L.R. at 1112.
170. Companies Act, § 209 (N.Z. 1955) (as amended in 1980).
171. Thomas v. H. W. Thomas, [1984] 1 N.Z.L.R. 686 (C.A.).
1987] UNITED KINGDOM APPROACH

The broad proposition that may be suggested is that in enforcing non-

membership rights other than to management participation and to em-
ployment, the test should be the proximity of the obligation sought to
be enforced, to the incorporation relationship. In other words, the test
should be whether the particular capacity in which the member has
been prejudiced was, in whole or in part, the raison d'etre
72
for his sub-
scribing to, or remaining a member of, the company.1

F. What Orders May the Court Make?

When the Cohen Committee recommended the introduction of the
remedy now contained in sections 459-461 of the Companies Act of 1985,
they suggested that the court should have "power to impose upon the
parties to a dispute whatever settlement the Court considers just and eq-
uitable. 173 The Companies Act of 1948, section 210(2), empowered the
court to make "such [orders] as it thought fit," but gave only two exam-
ples of the type of order that the court might make. 17 4 Therefore, in 1962
the Jenkins Committee found it necessary to recommend the addition of
two further examples rather than assume that the power might exist in
the court's general discretion. 17 5 The provisions which now govern the or-
ders which the court may make start, therefore, with the general provi-
sion contained in section 461(1): "If the court is satisfied that a petition
under this Part is well founded, it may make such order as it thinks fit
for giving relief in respect of the matters complained of."' 6 Following the
general provision, section 461(1) gives four examples of areas in which
orders might be made:
Without prejudice to the generality of subsection (1), the court's order
may: 17 7
(a) regulate the conduct of the company's affairs in future,
(b) require the company to refrain from doing or continuing
an act complained of by the petitioner or to do an act
which the petitioner has complained it has omitted to
do,178
(c) authorize civil proceedings to be brought in the name

172. See Shapira, supra note 102, at 155.

173. REPORT OF THE COMMITTEE ON COMPANY LAW AMENDMENT, 1945, CaD. No. 6659,
para. 60.
174. The examples listed in the statute are orders "for regulating the conduct of the
company's affairs in future, or for the purchase of the company by other members of the
company and, in the case of a purchase by the company, for the reduction according to the
company's capital." Companies Act, 1948, 11 & 12 Geo. 6, ch. 38 § 210(2).
175. REPORT OF THE COMPANY LAW COMMITTEE, 1962, CMND. 1749, paras. 206-208.
176. Companies Act, 1985, ch. 6, § 461(1). Petitioners must state what relief they seek.
See Re Antigen Laboratories, [1951] 1 All E.R. 110.
177. E.g., In re H.R. Harmer, [1959] 1 W.L.R. 62 (C.A. 1958) (ordering largest share-
holder not to interfere in affairs of company otherwise than in accordance with decisions by
board of directors).
178. Introduced in 1980 as a result of a Jenkins Committee recommendation. REPORT
OF THE COMPANY LAW COMMITTEE, 1962, CMND. No. 1749, paras. 208, 212(d).
 WAKE FOREST LAW REVIEW [Vol. 22

and on behalf of the company by such person or persons

and on such terms as the court may direct,' 9
(d) provide for the purchase of the shares of any members
of the company by other members or by the company
itself and, in the case of a purchase by the company it-
self, the reduction of the company's capital
accordingly. 8 '

It has long been established that orders may be made against share-
holders as well as against the company, both in connection with the
purchase of shares and in relation to the conduct of the company's af-
fairs.""1 Recently, a court expanded this rule when it refused to strike out
a petition which was challenged on the grounds that it sought a remedy
against a former member of the company. 82 The petition in that case
sought recovery of company property or its value from a former member
18 3
who was alleged to have diverted the property to his own purposes.
Courts are not precluded from making orders even if another remedy, in
84
the form of a derivative action, is available.
The remedy most frequently granted provides for the purchase of the
petitioner's share by either the company itself or by other shareholders in
the company.18 5 A considerable body of case law is building up regarding
the valuation of shares in such cases.' 8 The starting point is that the
valuation should be fair. 18 7 There is no general rule as to whether the
value of a minority stake should be a pro-rata share of the asset value of
the company or discounted as a minority stake. 88 However, when the pe-
titioner acquiesces in a purchase, to resolve a situation of unfair prejudice
in which he is not to blame, the purchase is comparable to an acquisition
of the petitioner's shares against his will. In such cases, he receives a pro-
rata share of the value of the company. 88 Conversely, if the petitioner's
actions warrant exclusion from the company some sort of discount might
be appropriate. 90 Likewise, there would be more justification for a dis-
count if the minority shareholders had themselves purchased at a dis-

179. Another Jenkins Committee recommendation. Id. paras. 206, 212(e).

180. E.g., Scottish Co-operative Wholesale Soc'y v. Meyer, 1959 A.C. 324 (1958) (or-
dering purchase of shares by the society).
181. In re H.R. Harmer, [1959] 1 W.L.R. at 62.
182. In re A Company (No. 005287 of 1985), 1986 B.C.L.C. 68.
183. Id. at 71.
184. The court can, of course, authorize civil proceedings under section 461(2)(c).
Companies Act, 1985, ch. 6, § 461(2)(c).
185. The court has authority to order the purchase of the respondents shares by the
petitioner. See In re Bovey Hotel Ventures (C.A. June 10, 1982); In re Jermyn St. Turkish
Baths, [1971] 1 W.L.R. 1042 (C.A.), appeal dismissed, [1971] 1 W.L.R. 1062.
186. The leading authority is In re Bird Precision Bellows, 1984 Ch. 419 (1983), af'd,
[1986] 2 W.L.R. 158 (C.A.), noted in Prentice, 102 LAW Q.R. 179-85 (1986).
187. In re Bird Precision Bellows, 1984 Ch. 419, 429F.
188. Bird Precision Bellows, 1984 Ch. at 426E-29E.
189. Id. at 430D-G. See also In re London School of Elec., 1986 Ch. 211 (1985); In re
O.C. Servs., 1984 B.C.L.C. 251.
190. Bird Precision Bellows, 1984 Ch. at 430G-31C.
1987] UNITED KINGDOM APPROACH

count, as, for example, if the shares had been acquired as an investment
from an existing shareholder without any intent to participate in
management.'9 1
The date at which the value is assessed is also a matter for the
court's discretion. When the prejudicial conduct has reduced the value of
the company (for example, by diverting assets away from it) the courts
have ordered assessments of a valuation at a date before the prejudicial
behavior began.' 2 In the absence of any special factors, the normal course
would probably be to take the date of the court order or the actual date
of the valuation.' 93 However, when appropriate, the courts have taken the
date of the petition as the date for assessment. In one case, in which the
value of the company was falling, the court justified using the petition
date because it was the date on which the petitioner elected to treat the
conduct of the majority as destroying the basis of his participation.' 9 In
another case, in which the value of company shares was rising, the justifi-
cation was that the post petition increase in value was due to the efforts
of the respondents. 95 Conversely, in a case in which the petitioner re-
fused earlier offers for his shares, the court used the date of the valuation
itself, despite the fact that the value of the company had fallen since the
issue of proceedings. 96

CONCLUSION

There can be little doubt that the change in judicial attitudes

brought about by the decision in Ebrahimi v. Westbourne Galleries
Ltd.,'197 coupled with the reformed procedure under sections 459-461 of
the Companies Act of 1985, has transformed the outlook for the protec-
tion for minority shareholders. It seems inconceivable that the petitioners
in In re Cuthbert Cooper & Sons Ltd., 98 the plaintiff in In re Smith and
Fawcett, Ltd., s9 or Mr. Greenhalgh in his various battles over Arderne
Cinemas, Ltd.200 would be without a remedy today. The next few years
are sure to witness a spate of litigation as the extent of minority share-

191. Id. at 431C-E.

192. In re O.C. Servs., 1984 B.C.L.C. 251; Scottish Co-operative Wholesale Soc'y v.
Meyer, 1959 A.C. 324 (1958) (parent company owes minority shareholders of subsidiary
company duty of fair dealing).
193. See Justice Nourse's view in London School of Elecs., 1986 Ch. at 224. This was
assumed to be the case where the parties consented to an order that the shares be pur-
chased at a value fixed by the court. Bird Precision Bellows, 1984 Ch. at 437. For a discus-
sion of whether interest could be awarded for the period prior to the judgment, see Bird
Precision Bellows, 1984 Ch. at 436-38.
194. In re A Company (No. 002612 of 1984) (C.A. Mar. 25, 1986).
195. London School of Elecs., 1986 Ch. at 223-25.
196. In re A Company (No. 002567 of 1982), [1983] 1 W.L.R. 927 (Ch.).
197. 1973 A.C. 360 (1972).
198. 1937 Ch. 392.
199. 1942 Ch. 304 (C.A.).
200. See Greenhalgh v. Arden Cinemas Ltd., 1951 Ch. 286 (C.A. 1950); Greenhalgh v.
Arden Cinemas Ltd., [1946] 1 All E.R. 512 (C.A.).
 WAKE FOREST LAW REVIEW I[Vol. 22

holder protection is established. The next few years may also see a debate
over whether companies and minority shareholders should welcome such
a change in judicial attitudes. Already one respected voice has expressed
doubts about "whether the judges in their approach to cases such as these
are showing an appreciation of the considerations which would be seen to
matter to the business client for whose benefit company law has been
'20 1
created.

201. L. SEALY, COMPANY LAW AND COMMERCIAL REALITY 46 (1984). Sealy argues that
the great strength of the judges in commercial law has been to leave matters to be arranged
by the parties themselves with the minimum of judicial intervention and advocates a similar
self-denying ordinance in company law.