Time-barred? Not so fast: the UK Supreme Court recasts limitation periods on shareholder and insolvency claims

Background and decisions of the lower courts

In 2019, Zedra, a minority shareholder in THG (a well-known online retailer), commenced an unfair prejudice petition under section 994 CA 2006.

That section permits a shareholder of a company to apply to court for a remedy under section 996 CA 2006 on the grounds that the company’s affairs are, or have been, conducted in a manner “unfairly prejudicial” to the interests of some or all of its members. The court, if it agrees that the petition is well founded, has a very wide discretion to make any order that it sees fit.

In 2022, Zedra sought to amend its petition to include matters relating to an issue of shares in THG. THG opposed Zedra’s amendment on the basis that its claim was time-barred.

The High Court rejected this and held that no limitation period applied.

The Court of Appeal allowed THG’s appeal, finding that an unfair prejudice petition was an “action upon a speciality” within the meaning of section 8 of the LA 1980, such that a 12-year limitation period would ordinarily apply. However, as Zedra was, unusually, seeking only a monetary award, the Court held that the correct limitation period was indeed 6 years (as the shorter 6-year limitation period under section 9 LA 1980 took priority over section 8(2) LA 1980).

The case came before the Supreme Court.

Supreme Court decision

Zedra argued that no statutory limitation period ought to apply to unfair prejudice petitions and that the Court of Appeal had erred in its judgment.

By majority (4 to 1) the Supreme Court agreed that:

• An unfair prejudice petition was not an “action upon a speciality” to which section 8 LA 1980 could apply. Properly understood, it created a procedural gateway and a route to relief for a shareholder where an unfairly prejudicial ‘state of affairs’ already existed.
• Second, section 9 LA 1980 did not apply here either (applicable to claims to recover ‘any sum recoverable by virtue of any enactment’). Although Zedra, the minority shareholder, had claimed only monetary compensation, the court has a very broad discretion to make any remedy it sees fit. It would therefore be nonsensical to apply a limitation period on the basis of the type of relief sought by Zedra, when, even if Zedra’s claim were successful, an entirely different type of relief might be awarded.
• Taken together, no limitation period (whether 12 years under section 8 or 6 years under section 9 LA 1980) applied to unfair prejudice claims under section 994 CA.

Lord Burrows dissented, holding that Zedra's petition was both action upon a specialty and an action to recover a sum recoverable by virtue of any enactment. On this basis, he would have dismissed the appeal and held that a 6-year limitation period applied (due to section 8(2) LA 1980).

Of equal significance, especially to litigators, was the majority’s analysis of the key authorities on limitation and how they apply to IA 1986 claims (their discussion of the key authorities relating to limitation periods applicable to those claims, including Re Priory Garage (Walthamstow) and Hill v Spread Trustee Co Ltd).

In short, the majority held that previous authorities that had held that a 6-year limitation period applied to many IA 1986 claims were wrongly decided, including claims concerning transactions to defraud creditors, preferences and transactions at an undervalue.

We note the similarity between those statutory remedies and section 994 CA 2006, and the discretion both give to the courts in terms of the remedy awarded. In our view, a good argument can be made post-Zedra that it would be unprincipled to approach those IA 1986 claims differently in relation to questions of limitation.

Further takeaways

It is now settled law, following the Supreme Court's decision, that no statutory limitation period applies for unfair prejudice claims under section 994 CA 2006. This decision therefore exposes private companies, directors, and majority shareholders to litigation by minority shareholders in respect of conduct that occurred more than 12 years before proceedings are issued. Nevertheless, well advised minority shareholders should still commence petitions promptly wherever they can, as the Supreme Court also confirmed that section 994 is a discretionary remedy, and, therefore, unreasonable delay can be a bar to relief under equitable rules (the doctrine of laches.)

Of at least equal significance was the majority’s reasoning on limitation on IA 1986 claims. This decision opens new avenues for office-holders (and creditors) to challenge transactions on behalf of insolvent companies over longer periods of time, including in relation to claims that were previously thought to be time-barred.

The obligation is now on boards and company secretaries to keep detailed and accurate records of decisions and shareholder communications for longer periods. In particular, there must be clear, well‑documented records to explain differences in treatment of shareholders.

Further litigation is likely to ensue given the potential benefits this decision creates for office-holders and aggrieved creditors. In the meantime, companies should engage with their advisors as early as possible to navigate this uncertainty and reduce the risk of potential claims.

It is possible that there may be legislative reform on this issue in the near future since this was invited by the Supreme Court.

Authored by Akima Paul Lambert, Jourdan Penrice, and Julien Kress.