Operating a business can be stressful, and it is not uncommon for shareholder disagreements to arise.
This can often lead to situations where shareholders feel the company is not being operated in a fair way, such that it has an adverse impact on them or the shareholders generally.
In such instances, shareholders of a company have the right to petition the court for relief where the affairs of the company are or have been conducted in a manner that is unfairly prejudicial to the interests of the shareholders.
That right is afforded by s994 of the Companies Act 2006.
Myerson's Dispute Resolution solicitors discuss remedy, what is a fair offer, and the O'Neill v Phillips offer.
When it comes to unfair prejudice petitions under s994, the petitioning shareholder is asking the court to make an order that is intended to cure the unfair prejudice complained of.
Typically, the remedy sought is that the petitioner's shares are purchased by the other shareholders or the company itself.
In cases where a buyout order is (or is likely to be) sought, a respondent shareholder (often the majority shareholder) can make a tactical offer in terms that it will purchase the petitioning shareholder's shares in accordance with the guidance of the House of Lords decision in O'Neill v Phillips .
If the court considers the offer "fair", this may mean that continuing with the petition will then be regarded as an abuse of process, which could provide grounds for an application to strike out the petition.
What is a "fair" offer?
An offer to purchase the shares will only offer protection to the respondent if the offer is "fair" in accordance with Lord Hoffman's guidance in O'Neill v Phillips as follows:
- The offer to purchase should be at fair value. This means that there should not generally be a discount applied to the value of the shares for it being a minority shareholding.
- If the value cannot be agreed upon, it should be determined by a competent expert.
- The offer should be to have the shares valued by an expert acting as an expert. The court does not expect that the offer should provide for arbitration or an expert who gives reasons. The objective should be economy and expedition.
- The offer should provide for equality of arms. This means both parties should have equal access to information needed to value the shares and make appropriate submissions to an expert. This means the company should not withhold relevant financial information from the petitioning shareholder.
- Finally, there is the issue of costs. In many cases, an offer will often include a proposal in respect of payment of some or all of the petitioner's costs. However, an offer to purchase shares does not always have to include an offer to pay costs to make it a fair offer. The question is often one of timing. This is because the respondent to the petition should have a reasonable time to make an offer before their conduct is considered unfair.
Importance of O'Neill v Phillips offers in shareholder disputes
An O'Neill v Phillips offer can be made at any point during the course of a shareholder dispute and is useful tactically in terms of striking out a petition and also in terms of cost protection.
However, it is very important that both petitioners and respondents seek professional legal advice as to O'Neill v Phillips offers since their content and timing can often play a critical role as to whether a court will deem the offer fair or not.
This, in turn, will often impact whether the petition is struck out and who will be responsible for the legal costs of the dispute, which will often be substantial.