A recent decision in an unfair prejudice petition raised against two director-shareholders of the Norco Group Limited in the Court of Session highlights the importance of advisors giving comprehensive and "joined up" advice, as opposed to focussing on distinct issues in isolation from one another.
The petitioner in this case was an employee, director and shareholder of a company and he was objecting to his removal from the company and the compulsory purchase of the shares held by him. In an attempt to remove the petitioner from the company and acquire his shares at a discount, the two respondent shareholder-directors put in place a very familiar three stage plan:
- Dismiss the petitioner as an employee of the company (having found justification for doing so);
- Remove the petitioner as a director of the company; and
- Implement the "leaver" provisions of the articles of the company so as to purchase the shares of the petitioner on a compulsory basis.
Not an uncommon scenario and the three stages (which each have their own discrete legal requirements) can be, when considered in isolation from one another, perfectly lawful. The fundamental problem, however, was that the parties did not consider the aggregate effect of their three stage plan and the potential for the removal of the individual concerned to be considered as unfairly prejudicial in terms of the Companies Act.
The Court found in favour of the petitioner and the decision serves as a reminder to those advising shareholder-directors in similar situations that considering various aspects of law in isolation from one another can lead to an unexpected outcome.
In this instance, failure to "join the dots" lead to a successful claim of unfair prejudice.