Lloyd's Maritime and Commercial Law Quarterly
SECTION 459 OF THE COMPANIES ACT 1985—A CODE OF CONDUCT FOR THE QUASI-PARTNERSHIP?
Brenda Hannigan*
One of the long recognized inadequacies of English company law has been the failure to provide effective protection for minority shareholders in small private companies.1 Section 210 of the Companies Act 1948 was the first statutory attempt to improve that position. It provided that a member might petition the court for relief where the affairs of the company were being conducted in a manner oppressive to some part of the members. However, as the Jenkins Committee pointed out in 1962, that section failed to produce the results expected of it and required amendment if it were to afford effective protection to minorities.2 Eventually it was repealed and replaced by s. 75 of the Companies Act 1980, now s. 459 of the Companies Act 1985. Section 459 provides that:
A member3 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.4
Initial interest in the section has focused on its scope and application. Is it wider than s. 210? What exactly is “unfairly prejudicial” conduct? What are the “interests” of the members which are to be protected? Some of these questions have now
* Faculty of Law, University of Southampton.
1. See Rajak, “The Oppression of Minority Shareholders” (1972) 35 M.L.R. 156; Prentice, “Protection of Minority Shareholders” [1972] C.L.P. 124; Sealy, “Protection of Minority Shareholders” [1976] C.L.J. 235; Wedderburn, “Oppression of Minority Shareholders” (1966) 29 M.L.R. 321.
2. Report of the Company Law Committee (hereafter referred to as the Jenkins Committee) Cmnd. 1749 (1962), para. 200.
3. The provision is not limited to minority shareholders but, as a matter of practice, they are the shareholders most likely to need to resort to it. “Members” for the purposes of this Part also include persons to whom shares have been transferred or transmitted by law, i.e., personal representatives and trustees in bankruptcy: s. 459(2); Re a Company [1986] B.C.L.C. 391. A petition may also be presented by the Secretary of State: s. 460. A similar power was granted to the Board of Trade under s. 210 of the 1948 Act but was never exercised.
4. Emphasis added. The word “Part” refers to Part XVII of the Act (ss. 459–461: Protection of Company’s Members against Unfair Prejudice). For a similar provision, see s. 27 of the Insolvency Act 1986, which provides that a creditor or member may petition, at any time when an administration order is in force, on the grounds that the company’s affairs, business and property are being or have been managed by the administrator in a manner which is unfairly prejudicial to the interests of its creditors or members generally, or of some part of its creditors or members (including at least himself), or that any actual or proposed act or omission would be so prejudicial. Section 127 of the Companies Act 1985, formerly s. 72 of the Companies Act 1948, also permits the holders of different classes of shares to challenge variations of the rights attaching to those shares on the ground that such variation would unfairly prejudice the members of that class. There is no useful law on the interpretation of that provision.
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