Do Statutory Limitation Periods Apply to Unfair Prejudice Petitions? 

For several decades, the prevailing wisdom had been that unfair prejudice petitions brought under s.994 of the Companies Act were not subject to the statutory limitation periods set out in the Limitation Act 1980. This principle was highlighted in the case of Bailey v Cherry Hill Skip Hire [2022] EWCA Civ 531. Proceedings in this case commenced on the assumed basis that limitation could not be raised as a ground of defence in unfair prejudice petitions.  

However, in February 2024, the Court of Appeal departed from this assumption in THG Plc v Zedra Trust Co (Jersey) Ltd [2024] EWCA Civ 158. It was held that the decision in Bailey v Cherry Hill Skip Hire was not legally binding for two reasons. Firstly, whether or not there was a time limitation for s.944 petitions was not discussed in any detail. Furthermore, the court had simply used the “no time limit” principle as a legal assumption when examining the facts of the case. The subject of limitation periods was not deliberated at length and conclusively decided upon. 

The court also unanimously agreed on three further points: 

• That the limitation periods of the Limitation Act apply to unfair prejudice petitions
• Where the relief sought is a monetary payment (liquidated or unliquidated), the petitioner must act within the 6-year limitation period (section 9 of the Limitation Act 1980)
• Where the relief sought is a buyout order or other type of relief, the statutory limitation period of 12 years applies (section 8 of the Limitation Act).

Background of THG PLC v Zedra Trust Company

Unfair prejudice petitions are typically lodged when a minority shareholder feels that their rights have been violated. Claims of this nature are usually brought under s.994 of the Companies Act 2006. If a shareholder believes they have been treated unfairly in terms of decision-making, shares being diluted or the underpayment of dividends, then the company member can apply to the court by petition under s.994. This was the situation that Zedra, a minority shareholder with around a 10% share of capital and voting rights, found themselves in.

In Zedra, the petitioner initiated an unfair prejudice petition under s.994 Companies Act 2006 in 2019 allegeding that share allotments had been issued in bad faith, with the ultimate aim of prejudicing their position. While large parts of the petition were struck out by the court due to insufficient evidence, the petition underwent a series of amendments, including an allegation that the petitioner had been wrongfully excluded from a bonus share allotment. The key issue the Court of Appeal had to consider was whether or not unfair prejudice petitions were time-barred by statute. 

Legal analysis 

Historically, the legal consensus had been that s.994 claims were not subject to statutory time limitations. The rationale behind this was that any wrongs within a company’s affairs must be able to be challenged without being bound by the clock. Nonetheless, the court also had to consider that limitation statutes were established to prevent stale claims and ensure fairness and legal certainty for all parties.

As unfair prejudice petitions under section 994 were a statutory right, they could fall within the scope of the Limitation Act. Where the remedy sought was monetary compensation (as in this case), the right to pursue action was limited to six years (section 9 of the Limitation Act 1980). 

Insolvency and commercial barrister Andrew Brown of Radcliffe Chambers notes that ‘This seems the obvious decision in light of the provision of section 9 of the Limitation Act 1980. The difficulty with unfair prejudice is that s.994 proceedings are often complex and prove difficult to run, and for whatever reason this particular point had never arisen. It is a useful reminder that where a claimant seeks monetary relief under a statutory provision, then they have a limitation period of six-years, which can apply likewise in situations where antecedent transactions are sought under the Insolvency Act 1986 such as preferences or transactions at an undervalue, but where non-monetary relief is sought, then the statutory limitation period might prove longer. It is always good to check these things when at the pre-action advice stage. Assumptions can be dangerous, as the example of Cherry Hill from two-years previous where all parties and assumed there was no limitation period demonstrates  ’

Consequently, the amended unfair prejudice petition brought in Zendra was time-barred by statute. 

What this could mean for future cases

The decision has a significant impact on both legal professionals and shareholders as s.994 petitions now fall in line with other statutory remedies subject to limitation periods. Both groups now must take statutory time limits into account when dealing with unfair prejudice petitions. Whether filing an unfair prejudice petition or defending against a s.994 petition, it is now important to consider the context of time and alleged prejudice.

The ruling invites further deliberation in terms of the priority of the court in balancing access to justice for wronged parties and upholding the legal clarity and efficiency that limitation statutes were designed for. 

Key points 

• While the courts have generally tried to limit delays in proceedings related to unfair prejudice, the judgement has formalised this approach. Unfair prejudice petitions now fall in line with other statutory remedies and are time-limited by statute. 
• The decision highlights the importance of seeking early legal guidance when facing a corporate dispute. Unfair prejudice petitions are now subject to temporal limitations similar to other statutory remedies. 
• Company members and legal practitioners must now navigate unfair prejudice claims with an increased awareness of the time limits of the Limitation Act 1980. 

It is important to note that on the 23rd of May 2024, permission was granted to appeal the judgement in THG Plc v Zedra Trust Co to the Supreme Court. Consequently, further developments and clarification as to the time sensitivity of unfair prejudice petitions are anticipated.  

For further reading on this matter, please see our other blogs below:-

• Shareholder remedies: How can I resolve a shareholder dispute?
• Minority shareholder disputes: What are your rights?
• What Are My Rights in Shareholder Disputes?
• As a minority shareholder, how can I enforce my rights?

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The above information is for general guidance on your rights and responsibilities and is not legal advice. If you need more details on your rights or legal advice about what action to take, please contact a legal advisor.