FLK1 · Multiple-choice practice

FLK1 Business Law — Question 38

Question

GlobalTech Ltd, a private company, has recently held its annual general meeting (AGM). During the meeting, the board of directors proposed a significant amendment to the company’s articles of association. The amendment would introduce stricter voting requirements for certain types of shareholder resolutions, effectively reducing the influence of minority shareholders. Jane, a minority shareholder holding 10% of the company’s shares, opposed the amendment but was outvoted by the majority shareholders. Jane seeks to challenge the amendment. Which legal mechanism allows Jane to challenge the amendment to the company’s articles of association?

Derivative action under section 260 of the Companies Act 2006
Petition for unfair prejudice under section 994 of the Companies Act 2006
Application for judicial review under the Administrative Court’s jurisdiction
Action for breach of directors’ duties under section 172 of the Companies Act 2006
Claim for misrepresentation under the Misrepresentation Act 1967

Answer and explanation

Correct answer: B. Petition for unfair prejudice under section 994 of the Companies Act 2006

Section 994 of the Companies Act 2006 provides a mechanism for minority shareholders to petition the court for relief on the grounds that the company’s affairs are being conducted in a manner that is unfairly prejudicial to their interests. In this scenario, Jane can challenge the amendment to the articles of association by filing a petition for unfair prejudice, arguing that the new voting requirements diminish her rights and influence as a minority shareholder. This section is specifically designed to protect minority shareholders from actions by the majority that are unjust or inequitable. The other options are not directly applicable in this context: derivative actions address wrongs done to the company, judicial review applies to public law matters, actions for breach of directors’ duties focus on directors’ conduct, and claims for misrepresentation involve false statements inducing contract formation. Therefore, Jane’s most appropriate legal recourse is to petition for unfair prejudice under section 994.

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