I do a lot of work around shareholder disputes, directors’ duties and section 994 petitions, and in my experience, these matters usually begin much earlier than a formal legal claim.
What is a section 994 petition?
Section 994 of the Companies Act 2006 allows a shareholder to petition the court where the company’s affairs have been conducted in a way that is unfairly prejudicial to the interests of shareholders generally, or to some part of the shareholders, including the petitioner.
In owner-managed businesses, section 994 petitions often arise where the lines between director, shareholder, founder, investor and business partner have become blurred.
It usually starts with something very human, and emotion-driven. Maybe a director feels excluded from decision-making, or a minority shareholder believes information is being withheld. Other times, it’s a case of documentation issues, like when a founder wants to leave, but the exit route is unclear. Or a share issue, dividend decision or business opportunity creates tension because the records are incomplete. The shareholders’ agreement does not say enough, or it says something that nobody has properly followed.
So, what can a business do if a section 994 unfair prejudice petition is being considered? And how can they prevent issues from escalating to that point? There are a few key points I would urge my clients to consider.
Businesses should pay attention to their structure
The first thing I look at when dealing with section 994 petitions is what structures, what formal business documentation is already in place, and how does that connect to the issues raised.
Documented detail matters because unfair prejudice disputes are highly fact-sensitive. A party may feel badly treated, but the legal position will depend on the documents, the pattern of conduct, the board process and the evidence available.
So as a business, do you have proper records showing who owns shares? Who sits on the board? What does the shareholders’ agreement say? Are there exit provisions? What do the articles of association provide? Have decisions been properly approved and recorded? Has one party been excluded from information or management? Has a director pursued an opportunity that may have belonged to the company?
If the answer to any of those is uncertain, that’s where working with a consulting solicitor can help. I can help to evaluate what evidence already exists, and where a business has record gaps that could make it vulnerable to section 994 petitions in the future.
Recent Supreme Court decisions also underline why these points matter. In Saxon Woods Investments Limited and others v Francesco Costa, the Supreme Court confirmed that the good faith requirement in section 172(1) of the Companies Act 2006 applies to a director’s conduct, not merely to their thought process. In THG Plc v Zedra Trust Company (Jersey) Ltd (case UKSC/2024/0047), the Supreme Court held that no statutory limitation period under the Limitation Act 1980 applies to unfair prejudice petitions under section 994, although delay can still affect whether relief is granted.
Good legal advice should ask “What can be proven?”, “What duties may have been breached”, “What remedy is realistic”, and “How can the business be protected without making the dispute worse?”
What should you expect from your legal team?
If you are dealing with a possible section 994 issue, your legal team should help you step back from the immediate conflict and assess the position strategically.
That means identifying the strongest legal points, preserving evidence, reviewing the company documents, considering directors’ duties, and understanding the commercial consequences of each possible route.
It also means being realistic about cost, delay, settlement options and the impact on the business. In many cases, the best advice is not to escalate immediately. It is to understand the leverage, protect the position clearly, and decide what is the most commercially sensible route.
Practical advice on preventing section 994 petition issues
Thankfully, I know that for most businesses, the practical takeaway is simple: The best way to protect your business is to ensure that your structure, records and processes are accurate long before a dispute reaches court.
And of course, if your business is facing shareholder issues, director disputes or concerns about unfair prejudice, early advice can help clarify the risks before positions become entrenched.
S King Legal supports businesses with shareholder disputes, directors’ duties, section 994 petitions and commercial decision-making. Where reserved legal work is required, S King Legal undertakes this through one of the authorised firms they consult with.