THG PLC v Zedra – The door kept open for disgruntled shareholders
Most civil claims before England and Wales are subject to limitation periods. Subject to a whole array of exceptions, specificities and lacunas, the standard time bar for both breach of contract matters and negligence claims is six years (twelve for a contract by deed). The expiration of a limitation period is a complete defence to a claim and late claims are liable to be struck out. There are obviously good public policy reasons for limitation periods; prospective litigation should not be used as a Sword of Damocles.
The Supreme Court’s decision in THG Plc v Zedra
The recent Supreme Court decision of THG Plc v Zedra Trust Company[1] reaffirms an exception to that stated norm for petitions brought under s.994 of the Companies Act 2006, relating to unfair prejudice in the running of a company’s affairs.
As the Supreme Court decision noted, for some forty years, the perceived wisdom had been that such claims were not subject to any limitation period, but, when Zedra reached the Court of Appeal, it decided that various limitation periods could be applicable. The Supreme Court reversed that decision (a decision of four to one), concluding that, as the law was currently drafted, no limitation periods were applicable.
It goes without saying that the judgment is not an invitation to sit back and not take action – delay might still prejudice your claim, and the passage of time and fading memories often make a claim more difficult in any event. Still, for minority shareholders with historic grievances, the door to formal litigation remains firmly open.
Zedra itself is a good illustration of how historic prejudice might play out. The petitioner alleged that it was excluded from a bonus share issue that took place in 2016. It claimed just shy of £2million by way of damages for that exclusion, calculated principally by reference to THG’s IPO value in 2020. A significant asset unlocked from what might, ten years ago, have been considered only a minor or insubstantial course of conduct.
What is unfair prejudice, in practice?
Section 994 of the Companies Act 2006 is a powerful tool which entitles a shareholder to petition the Court where the company’s affairs have been run in a way that is unfairly prejudicial to their interests. It is deliberately broad, as is the relief that the Court can grant where it finds a shareholder has been unfairly prejudiced.
Common forms of prejudice include:
- exclusion from management (particularly in smaller or quasi-partnership companies established or built on a shared understanding);
- diversion/misappropriation of company assets or opportunities to other shareholders; excessive pay or benefits to those in control;
- unfair dilution through share issues; and
- withholding information shareholders are entitled to; and paying no dividends while insiders reward themselves through salaries and benefits.
What ties these together is a mismatch between how the company is being run and what a reasonable shareholder would have expected, particularly set against the basis on which the company was incorporated and how it has historically been managed.
The key to the action is demonstrating that the conduct complained of is unfair. A dilution of a shareholding might well be prejudicial, but if it is a necessary action to keep a company afloat, or because of a new issuance that was offered to all shareholders, then it will not be unfair and no cause of action arises.
What remedies are available to shareholders?
Once unfair prejudice is established, s.996 of the Companies Act provides that the “Court may make such order as it thinks fit for giving relief in respect of the matters complained of”. This is deliberately wide-ranging and common forms of remedies ordered by the Court include:
- A buy-out order, requiring the majority to purchase the minority’s shares at fair value (but often at a discount to reflect the minority position[2]), is the most common outcome and often the most practical. It gets the minority shareholder out of a relationship that is not working. Where wrongdoing has been established (e.g. the diversion of business away from the company) the valuation will ordinarily be calculated based on that wrongdoing not having happened;
- New share issuances can be revoked, or the company can be ordered to issue further shares to restore a diluted shareholder to their previous position;
- The Court can direct how the company’s affairs are conducted going forward, requiring it to refrain from certain conduct or take mandatory steps; and
- Where the unfair prejudice has caused calculable loss to a shareholder, those who cause that loss can be made liable for damages accordingly.
Relief can often comprise a combination of the above, or some other specific remedy to fix the identified prejudice. Zedra confirms that, however old and historical the alleged unfair prejudice, there may always be a remedy for the disgruntled shareholder. The sword of Damocles restrung, it might be said.
Does delay still matter?
Delay still matters, just not as a hard deadline. In Zedra, the majority of the Supreme Court were explicit on this front.
“whether or not there is a statutory limitation period, the court in addressing an application under section 994 of the CA 2006 may take account of unjustified delay by the claimant which has an adverse effect on a respondent or other persons when exercising its discretion to grant or refuse a particular remedy or any remedy.“
Realistically, whilst there is no clock ticking, a shareholder who delays for too long may well still find the Court unwilling to grant relief, or a less generous remedy. Even Lord Burrows, dissenting on the main issue, agreed that “almost invariably, unjustified delay will mean that there is prejudice to the defendant or a third party,” entitling the Court to refuse relief, even if the petition was well founded and was not time barred. The advice is clear: do not sit on your hands.
When unfair prejudice may also amount to criminal conduct
Unfair prejudice will often overlap with behaviour amounting to criminal conduct. Mismanaging a company and seeking to use its capital table as leverage to secure preferential treatment from fellow shareholders can amount to blackmail. Mistreating fellow shareholders can amount to harassment. Misappropriating company assets is theft and producing false accounts is fraud. Each are unfairly prejudicial and could found a s.994 petition. But seeking recourse in such situations need not be limited to civil actions.
Can a private prosecution strengthen your position?
Where conduct is serious enough to meet the criminal threshold, and the police or regulators have not or will not act, a private prosecution is always worthy of consideration. Substantial mismanagement of a highly valuable company might well warrant a private prosecution, to protect your shareholding.
Key takeaways for shareholders:
The Supreme Court’s decision in Zedra is clearly significant. For shareholders concerned about how the company they have invested in is being run, or how it was run, then this is a good moment to take stock. So too for majority shareholders with skeletons in the closet. Past conduct that it might have been thought was beyond repercussion will now be of real significance, particularly if the company is performing well and increasing in value, or if there is friction in the board.
A finding of unfair prejudice provides the Court with wide ranging powers to grant relief as it considers appropriate. Delay may influence the Court’s discretion, but there is now no time bar on when such a petition might be commenced. Alongside the possibility of a private prosecution, disgruntled shareholders have a significant armoury available to protect their position.
Richard Doble & Joshua Fineman
If you believe you have suffered unfair prejudice as a shareholder, obtaining early legal advice is essential. At Edmonds Marshall McMahon, we advise shareholders, directors and businesses on complex shareholder disputes, unfair prejudice petitions, civil fraud and, where appropriate, private prosecutions arising from dishonest corporate conduct. Our team can assess your options and help protect your position.
[1] THG Plc v Zedra Trust Company[1] (Jersey) Ltd [2026] UKSC 6
[2] See O’Neill v Phillips [1999] UKHL 24
