The impact of coronavirus on share valuations in unfair prejudice petitions
Under s.994 of the Companies Act 2006 (“s.994”), a minority shareholder can bring a petition against the majority shareholders where the majority shareholders have engaged in conduct that is unfairly prejudicial on the interests of the minority shareholder or shareholders.
Under s.996 of the Companies Act 2006 (“s.996”), the court has a very wide discretion to order relief that is appropriate to the complaints raised by the petitioning minority shareholder. There is a list of examples of relief within the section, but that list is not exhaustive. However, the most common form of relief is that the minority shareholders shares will be purchased by the minority at a fair value and without any discount being applied for them being minority interest shares in a private company – in other words the petitioner ought to get a proportion of the proper value of the company.
Unfair prejudice petitions are therefore highly dependant on the value of the company. During the current coronavirus pandemic and given the imposition of lockdown conditions in March 2020 by the British Government, corporate values have been eroded greatly; a company that cannot trade in effect has no value.
The concern for minority shareholders is what impact all of this would have on their claims; happily, the court has offered some guidance on this in Dinglis v Dinglis & Master Holdings Group Limited & Dinglis Properties Limited  EWHC 1363.
In this case, the petitioner had issued a petition under s.994, which had come to trial in March 2019. At the trial, the judge found that the majority shareholders had engaged in unfairly prejudicial conduct and ordered that they purchase the petitioners shares. Evidently, valuation then became an issue and so the matter came back before the Court in December 2019, and the Court determined that the valuation date should be 25 July 2019.
In March 2020 and responding to the government directions in response to the pandemic, the respondent company stopped trading, and as a result its value collapsed. The respondents therefore made an application to the court on the basis that the valuation date should be moved to reflect the new value of the company, arising from the fact that it had in effect gone into hibernation.
The Court refused the application. In doing so, the judge said that the Order in December 2019 was in effect a final Order of the Court and therefore could not be unravelled. The judge also said that it would be unfair to dilute the petitioners remedy based on circumstances beyond his control (the onset of the pandemic). Therefore, the valuation date of 25 July 2019 stands, and presumably the petitioning minority shareholder will get a greater price for his shares than if they were valued today.
This demonstrates that the Court is keen to do justice for minority shareholders and not see them lose value as a result of the pandemic. Arguably, the court might have exercised its discretion under s.996 and moved the valuation date, but it refused to do so.
This case can be distinguished from others on the basis that the Court had already made a finding on the valuation date; however given the ongoing lockdown and the effect that is having on company valuations I think that we can see the court continuing to be flexible on valuation dates, particularly where justice needs to be done for the wronged minority shareholder, and where the conduct they have been subjected to is serious.