Meaning
Legal outcomes provided by a court to address the harm suffered by minority shareholders due to the inequitable conduct of the majority or the directors. Aggrieved parties seek unfair prejudice remedies when the company affairs are managed in a way that defeats their legitimate expectations. These interventions are designed to restore the economic balance between shareholders and prevent the abuse of corporate power.
Buyout Order
Mandating that the majority purchase the shares of the minority at a fair price is the most frequent response to a successful claim. To ensure the price is equitable, unfair prejudice remedies often exclude any discount for the fact that the holding is a minority stake. This allows the exiting shareholder to receive the full pro rata value of their investment as if the company were being sold as a whole.
Conduct Regulation
Injunctions can be issued to stop the management from taking specific actions that would further harm the interests of the petitioner. While a buyout is the preferred route, unfair prejudice remedies also include the power to set aside transactions or to order the payment of dividends that were withheld in bad faith. These orders target the specific behavior that caused the injury and provide a tailored solution to the governance failure.
Valuation Date
Choice of when to value the shares can greatly impact the final amount of cash that changes hands. Courts choosing unfair prejudice remedies might set the valuation at the date the petition was filed or the date the unfair conduct began. This decision prevents the majority from benefiting from any decrease in share price that occurred because of their own misconduct.
Judicial discretion in this area ensures that the remedy remains flexible enough to address unique circumstances in private company disputes. The availability of such relief acts as a deterrent against the marginalization of smaller investors in closely held corporations.
