Exclusion from Management in Quasi-Partnerships: Rethinking s 994 of the Companies Act 2006

Introduction

Exclusion from management presents a particular difficulty in quasi-partnership companies.[1] Those controlling a company may possess formal legal powers capable of excluding a participant from management, yet equitable considerations[2] may constrain reliance upon those powers where participation formed part of the basis on which the parties associated. Section 994 of the Companies Act 2006 provides a means of challenging unfairly prejudicial conduct, but uncertainty remains over whether exclusion contrary to an established management understanding should be sufficient to establish unfair prejudice.[3]

The issue creates a difficult balance between protecting the basis of the parties’ association and preserving the flexibility inherent in the unfair-prejudice jurisdiction. Existing authority recognises the relevance of management understandings, but leaves room for the circumstances surrounding exclusion to affect whether the conduct is unfair.[4] This article argues that exclusion contrary to an established management understanding should give rise to a rebuttable presumption of unfair prejudice.[5]

The article proceeds as follows. Section II sets out the existing legal framework. Section III defines an established management understanding. Sections IV and V evaluate the case for stronger protection and its limits. Section VI examines the significance of reasonable offers to purchase an excluded member’s shares.

The Existing Legal Framework

Section 994 and Unfair Prejudice

Section 994(1) of the Companies Act 2006 permits a member to petition where the company’s affairs, or an actual or proposed act or omission, are or would be unfairly prejudicial to members’ interests.[6] Unfairness and prejudice are distinct requirements; prejudice must affect the petitioner as a member, be real rather than trivial and be established objectively, but need not be financial.[7] Exclusion from management may therefore constitute prejudice to a member where an interest in management participation is recognised in law or protected in equity, although whether that prejudice is unfair remains a separate question.[8]

Equitable Constraints in Quasi-Partnerships

In Ebrahimi v Westbourne Galleries Ltd, Lord Wilberforce recognised that legal rights may be constrained by equitable considerations arising from members’ personal relationship.[9] Relevant circumstances may include mutual confidence, an understanding that shareholders will participate in management and restrictions on transferring their interests, although these are illustrative rather than a rigid test.[10] Quasi-partnership status is not itself required under s 994; it is the underlying equitable considerations that may constrain otherwise valid legal powers.[11]

Management Understandings under O’Neill v Phillips

O’Neill v Phillips applied these principles to unfair prejudice. Although the terms governing the association are the starting point, equitable considerations may make reliance upon strict legal powers unfair.[12] Such considerations commonly arise from understandings formed when members enter the association, although later promises by words or conduct may also be relevant without being independently enforceable contracts.[13] Where that restraint protects an interest in management participation, exclusion may prejudice the member as a member rather than merely affect a directorial role.[14] Establishing that interest, however, does not determine the consequence that should follow from exclusion.

III. Defining an Established Management Understanding

An established understanding need not be independently enforceable as a contract. In O’Neill v Phillips, Lord Hoffmann treated what the parties had agreed “by words or conduct” as a useful cross-check and recognised that equitable restraints in a quasi-partnership usually arise from understandings formed when members enter the association, although later promises may also become relevant.[15] A unilateral expectation is insufficient: a ‘legitimate expectation’ is the consequence, not the source, of an equitable restraint.[16] This shared basis is consistent with Milman’s characterisation of quasi-partnership as a personal relationship involving mutual confidence, in which the formal corporate and employment relationships may not tell the whole story.[17] Where an agreement, promise or understanding is not enforceable at law, Kaneria v Patel further indicates that equitable intervention will generally require the minority to have acted in reliance upon it.[18]

The content of the understanding must also be identified from the parties’ actual relationship. Simpson v Diamandis illustrates that management participation need not involve day-to-day operations: Simpson had historically participated in strategic decision-making within a relationship of mutual trust and confidence.[19] Its scope nevertheless matters. In Moxon v Litchfield, Hildyard J held that even if an understanding of continued management participation existed, it “must have had some limit”, particularly in light of the parties’ contractual arrangements.[20]

Nor can an historical understanding simply be assumed to continue. In Saini v Pandher, the original understanding changed when Saini agreed to step back from involvement pending a contemplated buyout, altering the corresponding equitable restraints; the relevant personal understanding subsequently ended on the death of the other participant.[21] An established understanding should therefore be understood as an objectively ascertainable, mutual understanding concerning management participation, demonstrated by the parties’ words, conduct and dealings, forming part of the basis of their association and remaining operative at exclusion. A demanding threshold of this kind strengthens the case for attaching greater consequences to exclusion once that threshold is satisfied.

The Case for Stronger Presumptive Protection

Protecting the Basis of the Association

The principal weakness in the present approach is the uncertainty remaining after a qualifying management understanding and exclusion contrary to it have been established. O’Neill v Phillips and Kaneria v Patel recognise that strict corporate powers may be constrained by equitable considerations arising from the basis of the association,[22] while Milman characterises quasi-partnership as an ad personam relationship in which rights may extend beyond formal corporate arrangements.[23] Yet if a petitioner proves a mutual, objectively ascertainable and operative management understanding, and deliberate exclusion contrary to it, retaining a further open-ended inquiry into unfairness risks duplicating the inquiry which established why reliance upon strict legal powers is inequitable in the first place. The objection is therefore not to contextual flexibility itself, but to retaining an unrestricted inquiry into unfairness after the circumstances giving rise to the equitable restraint have already been established.

Stronger consequences risk converting informal expectations into rights exceeding those intended, but that concern is less persuasive once the demanding threshold is satisfied. Contractual limitations should nevertheless remain significant in determining the existence and scope of the asserted understanding.[24] The preferable approach is therefore to give presumptive effect to an equitable limitation only after its existence, content and continuing operation are established. This preserves majority rule while reducing opportunities to use formal powers to defeat the proved basis of the association.

The Independent Value of Management Participation

Stronger protection is also justified because management participation may itself be an important feature of quasi-partnership membership, so exclusion can destroy an independently valuable interest. [25] In Magic Investments SA v Broadbent, the Court of Appeal likewise emphasised the importance of a shareholder’s entitlement to management participation and rejected the suggestion that its denial was necessarily merely “trivial or technical”.[26] However, Magic Investments concerned an express contractual entitlement, whereas quasi-partnership protection may rest upon an informal equitable understanding. [27]  This cautions against equating every expectation with a contractual right, but not against meaningful protection once the understanding is rigorously proved.

The problem is intensified where restrictions on exit and the absence of a liquid market leave an excluded quasi-partner economically locked into an enterprise from which meaningful participation has been removed. [28] Although stronger minority protection may divert company resources towards shareholder disputes, that concern supports careful targeting rather than weak protection once a qualifying management understanding is proved.[29] A presumption triggered only after the demanding gateway is satisfied would not make every managerial disagreement actionable under s 994.

Certainty, Flexibility and a Rebuttable Presumption

The principal institutional objection is that greater certainty may sacrifice the flexibility which gives s 994 its value, a tension identified by Pavlovich. [30]  A rebuttable presumption would instead concentrate the principal inquiry on whether the understanding was mutual, sufficiently defined and operative, while retaining contextual scrutiny where departure from it can be justified.

The Law Commission recommended a rebuttable presumption of unfair prejudice in specified private-company management-exclusion cases, partly to increase certainty and facilitate resolution. [31]  Although not enacted, the proposal demonstrates that presumptive consequences were considered a plausible response to uncertainty surrounding management exclusion. [32] The Commission’s gateway relied substantially upon structural characteristics, whereas the threshold advanced here requires proof of the parties’ actual mutual and continuing management understanding. [33] If structural indicators could justify a presumption of unfair prejudice, proof of the understanding itself arguably provides stronger justification.

Nor need greater certainty in determining whether unfair prejudice is established produce rigidity at the remedial stage. Section 996 preserves broad discretion once a petition is well founded, including power to order the purchase of shares.[34] A finding of unfair prejudice therefore need not force dysfunctional quasi-partners back into management together. The preferable approach is therefore neither unrestricted discretion nor an irrebuttable rule. Contrary exclusion should create a rebuttable presumption of unfair prejudice once a qualifying management understanding is established, giving effect to the association and improving predictability while preserving flexibility where exclusion can be justified.

The Limits of Automatic Sufficiency

Management Understandings Are Neither Unlimited nor Immutable

An established management understanding cannot guarantee participation irrespective of subsequent circumstances. In Moxon v Litchfield, Hildyard J accepted that an understanding of continued participation might exist but stressed that it “must have had some limit”, particularly where the parties had provided for circumstances in which participation could end.[35] Proving an understanding therefore establishes that participation formed part of the parties’ relationship, not that the entitlement was unconditional. Automatic sufficiency could otherwise give an equitable understanding greater protection than the parties intended.

The entitlement may also change as the parties’ relationship develops. In Saini v Pandher, the original understanding changed when Saini agreed to step back from involvement pending an intended buyout, altering the corresponding equitable restraints.[36]  Requiring an understanding to remain operative addresses much of this concern, but its scope or conditions may still change.[37] The inquiry must therefore consider not only whether an understanding existed, but what it required when exclusion occurred.

Contrary Exclusion May Nevertheless Be Justified

Even exclusion contrary to an operative understanding may not invariably be unfair. Misconduct, breach of relevant obligations or other circumstances may render continued involvement legitimately untenable.[38] Wang accordingly argues that exclusion of a quasi-partner does not ipso facto establish unfair prejudice and that justification must be assessed in light of the circumstances, including the petitioner’s conduct.[39]

The company’s governance and commercial interests must also be considered. Li stresses the need to reconcile shareholder protection with appropriate corporate autonomy,[40] while Hardman highlights the institutional effects of minority-protection mechanisms.[41] An irrebuttable rule could therefore overcorrect by privileging participatory interests even where exclusion was necessary to protect legitimate corporate interests.

This supports structured discretion rather than either extreme. Unrestricted contextual assessment preserves uncertainty, while automatic sufficiency prevents distinction between opportunistic exclusion and justified removal. Under a rebuttable presumption, once exclusion contrary to a qualifying understanding is proved, the respondent should demonstrate circumstances sufficient to justify it. This strengthens the management interest without making it absolute.

The preferable position therefore lies between automatic sufficiency and unrestricted discretion: contrary exclusion should carry a stronger legal consequence, while surrounding circumstances remain capable of rebutting unfairness. Whether a reasonable offer to purchase the excluded member’s shares should constitute such a circumstance presents a distinct difficulty considered next.

The Reasonable-Offer Problem: Should Fair Exit Negate Unfair Prejudice?

Fair Exit as an Answer to Exclusion

The reasonable-offer principle presents the strongest challenge to the proposed presumption. In O’Neill v Phillips, Lord Hoffmann indicated that where participants have associated on the basis that each will participate in management, exclusion will ordinarily be unfair if the excluded member is not offered a fair opportunity to withdraw their capital.[42] The rationale is practical: without fair exit, an excluded shareholder may be left “marooned” in a company controlled by others.[43] A fair buyout can therefore address continuing financial prejudice without requiring dysfunctional parties to resume co-management.

That rationale depends upon the interest requiring protection. If the principal concern is economic lock-in, a fair opportunity to withdraw capital provides a powerful answer to exclusion; if the protected interest also encompasses participation arising from the basis of the parties’ association, however, financial exit cannot necessarily answer the unfairness. Hardman observes that although buyout provides a “final exit”, it may not be the remedy sought by the wronged shareholder.[44] Permitting deliberate termination of an established management understanding whenever fair value is offered risks reducing participation to an entitlement capable of unilateral purchase.

Should an Offer Negate Unfairness or Determine its Consequences?

A reasonable offer may address the consequences of exclusion without necessarily demonstrating that the exclusion itself was fair. Section 996 permits the court, once a petition is well founded, to make “such order as it thinks fit”, including ordering a share purchase.[45] Unfair prejudice arising from exclusion can therefore coexist with a commercially sensible separation. Treating exit primarily as remedial would preserve the force of the management understanding while allowing a practical clean break.

A complete separation between unfairness and remedy would, however, be equally artificial. Prescott v Potamianos rejects mechanical treatment of reasonable offers: their significance depends upon factors including value, implementation and proximity to the alleged unfair conduct.[46] Their effect is not binary: an offer may defeat the petition, affect relief or costs, or have no effect.[47] This provides a stronger model than treating an offer either as an automatic cure or invariably as remedial.

Timing should therefore be significant. An early or contemporaneous fair-separation proposal may contribute to rebutting the presumption, whereas a later offer risks becoming merely the price of disregarding the participatory understanding. In Magic Investments, the Court of Appeal refused to treat a later offer as sufficient to strike out the petition, taking account of its timing and treatment of litigation costs.[48]

A reasonable offer should therefore remain highly relevant without invariably neutralising the presumption. Its timing, terms and relationship to the exclusion should determine its significance: an early fair-separation proposal may affect whether unfair prejudice is established, while a later offer should ordinarily carry greater weight in relation to remedy and costs. This preserves fair exit without allowing management participation invariably to be converted into cash at the majority’s election.

VII. Conclusion

Exclusion from management contrary to an established understanding should not be automatically sufficient to establish unfair prejudice under s 994 of the Companies Act 2006. It should, however, be presumptively sufficient. Where a petitioner proves a mutual, objectively ascertainable and operative understanding that management participation formed part of the basis of the association, contrary exclusion defeats an interest which equity recognises notwithstanding the majority’s formal legal powers.

An irrebuttable rule would go too far. Management understandings may be limited or evolve, while misconduct or legitimate corporate interests may justify exclusion. A rebuttable presumption provides stronger protection against opportunistic exclusion while preserving the contextual flexibility necessary to distinguish unfair exclusion from justified removal.

Reasonable offers further demonstrate why that flexibility matters. Fair exit can prevent an excluded quasi-partner remaining economically trapped in a failed relationship, but financial value is not necessarily equivalent to the participatory interest lost. An offer should therefore remain capable of affecting whether unfair prejudice is established according to its timing, terms and relationship to the exclusion, while retaining substantial significance for remedy and costs.

Accordingly, a rebuttable presumption would provide greater certainty and meaningful protection for minority participants without converting management participation into an absolute entitlement or unduly restricting legitimate majority control.

Bibliography

Primary Sources

Cases

Ebrahimi v Westbourne Galleries Ltd [1973] AC 360 (HL)

Kaneria v Patel [2000] 2 BCLC 321

Magic Investments SA v Broadbent [2026] EWCA Civ 711

McKillen v Misland (Cyprus) Investments Ltd [2012] EWHC 2343 (Ch)

Moxon v Litchfield; Re LCM Wealth Management Ltd [2013] EWHC 3957 (Ch)

O’Neill v Phillips [1999] 1 WLR 1092 (HL)

Prescott v Potamianos [2019] EWCA Civ 932

Saini v Pandher [2026] EWHC 1851 (Ch)

Simpson v Diamandis [2024] EWHC 850 (Ch)

Wells v Hornshaw [2024] EWHC 330 (Ch)

Legislation

Companies Act 2006
s 994
s 996 

Secondary Sources

Books

Wang Q, Exit Remedies for Minority Shareholders in Close Companies: England, the United States and China (Kluwer 2011)

Journal Articles

Hardman J, ‘An Institutional Analysis of UK Ostensible Minority Shareholder Protection Mechanisms’ (2023) 23(2) Journal of Corporate Law Studies 397

Koh AK, ‘Shareholder Withdrawal in Close Corporations: An Anglo-German Comparative Analysis’ (2022) 22(1) Journal of Corporate Law Studies 197

Li Z, ‘An Assessment of the Effectiveness of the Unfair Prejudice Remedy in UK Company Law: How can we Guarantee Appropriate Judicial Discretion?’ (2022) 7(2) Cambridge Law Review 72

Milman D, ‘Legal Characterisation of Commercial Relationships in the UK: the Quasi-Partnership Example’ (2019) 40(10) Company Lawyer 312

Pavlovich A, ‘“Reasonable Offers” As a Defence to Unfair Prejudice Petitions: Prescott v Potamianos’ (2020) 83(2) Modern Law Review 443

Official Publications

Law Commission, Shareholder Remedies (Law Com No 246, 1997)

[1] A quasi-partnership describes a company in which the relationship between its members may give rise to equitable considerations constraining the exercise of their strict legal rights. Relevant features may include a personal relationship involving mutual confidence, an understanding that some or all members will participate in management, and restrictions on the transfer of their interests. Ebrahimi v Westbourne Galleries Ltd [1973] AC 360 (HL) 379–80.

[2] In this context, “equitable considerations” refers to principles of equity which may constrain a member’s reliance upon strict legal rights because of personal obligations or understandings arising between the parties. Ebrahimi v Westbourne Galleries Ltd [1973] AC 360 (HL) 379; O’Neill v Phillips [1999] 1 WLR 1092 (HL) 1098–1101.

[3] Companies Act 2006, s 994(1).

[4] O’Neill v Phillips [1999] 1 WLR 1092 (HL) 1098–1102, 1106–08.

[5] A rebuttable presumption, as proposed in this article, would mean that once the petitioner establishes a qualifying management understanding and exclusion contrary to it, unfair prejudice would be presumed unless the respondent demonstrates circumstances sufficient to rebut the presumption.

[6] Companies Act 2006, s 994(1).

[7] Saini v Pandher [2026] EWHC 1851 (Ch) [12]–[13].

[8] McKillen v Misland (Cyprus) Investments Ltd [2012] EWHC 2343 (Ch) [630]; Saini v Pandher [2026] EWHC 1851 (Ch) [13].

[9] Ebrahimi v Westbourne Galleries Ltd [1973] AC 360 (HL) 379.

[10] Ebrahimi v Westbourne Galleries Ltd [1973] AC 360 (HL) 379–80.

[11]Ebrahimi v Westbourne Galleries Ltd [1973] AC 360 (HL) 379–80; Saini v Pandher [2026] EWHC 1851 (Ch) [111].

[12] O’Neill v Phillips [1999] 1 WLR 1092 (HL) 1098–1101.

[13] O’Neill v Phillips [1999] 1 WLR 1092 (HL) 1101.

[14] McKillen v Misland (Cyprus) Investments Ltd [2012] EWHC 2343 (Ch) [630]; Saini v Pandher [2026] EWHC 1851 (Ch) [13].

[15] O’Neill v Phillips [1999] 1 WLR 1092 (HL) 1101.

[16] The expression ‘legitimate expectation’ describes the interest arising as a consequence of such an equitable restraint; it is not an independent source of rights. O’Neill v Phillips [1999] 1 WLR 1092 (HL) 1101–02.

[17] David Milman, ‘Legal Characterisation of Commercial Relationships in the UK: the Quasi-Partnership Example’ (2019) 40(10) Company Lawyer 312, 313–14.

[18] Kaneria v Patel [2000] 2 BCLC 321, 344.

[19] Simpson v Diamandis [2024] EWHC 850 (Ch) [27], [111]–[112], [119].

[20] Moxon v Litchfield; Re LCM Wealth Management Ltd [2013] EWHC 3957 (Ch) [42]–[44].

[21] Saini v Pandher [2026] EWHC 1851 (Ch) [110]–[114].

[22] O’Neill v Phillips [1999] 1 WLR 1092 (HL) 1098–1101; Kaneria v Patel [2000] 2 BCLC 321, 344.

[23] David Milman, ‘Legal Characterisation of Commercial Relationships in the UK: the Quasi-Partnership Example’ (2019) 40(10) Company Lawyer 312, 313–14.

[24] Moxon v Litchfield; Re LCM Wealth Management Ltd [2013] EWHC 3957 (Ch) [42]–[44]; McKillen v Misland (Cyprus) Investments Ltd [2012] EWHC 2343 (Ch) [635]–[637].

[25] Milman (n 16) 315–16.

[26] Magic Investments SA v Broadbent [2026] EWCA Civ 711 [31]–[34].

[27] Magic Investments SA v Broadbent [2026] EWCA Civ 711 [31]–[34]; O’Neill v Phillips [1999] 1 WLR 1092 (HL) 1098–1102.

[28] Alan K Koh, ‘Shareholder Withdrawal in Close Corporations: An Anglo-German Comparative Analysis’ (2022) 22 Journal of Corporate Law Studies 197, 203–08.

[29] Jonathan Hardman, ‘An Institutional Analysis of UK Ostensible Minority Shareholder Protection Mechanisms’ (2023) 23 Journal of Corporate Law Studies 397, 423–28.

[30] Anthony Pavlovich, ‘“Reasonable Offers” As a Defence to Unfair Prejudice Petitions: Prescott v Potamianos’ (2020) 83 Modern Law Review 443, 443–44.

[31] Law Commission, Shareholder Remedies (Law Com No 246, 1997) paras 3.26–3.28, 3.45–3.48, 3.56.

[32] Law Commission (n 31) paras 3.45–3.48, 3.56; Companies Act 2006, s 994.

[33] Law Commission (n 31) paras 3.45–3.48, 3.56.

[34] Companies Act 2006, s 996(1), (2)(e).

[35] Moxon v Litchfield; Re LCM Wealth Management Ltd [2013] EWHC 3957 (Ch) [44].

[36] Saini v Pandher [2026] EWHC 1851 (Ch) [110]–[114].

[37] Moxon v Litchfield; Re LCM Wealth Management Ltd [2013] EWHC 3957 (Ch) [42]–[44]; Saini v Pandher [2026] EWHC 1851 (Ch) [110]–[114].

[38] Moxon v Litchfield; Re LCM Wealth Management Ltd [2013] EWHC 3957 (Ch) [42]–[44].

[39] Q Wang, Exit Remedies for Minority Shareholders in Close Companies: England, the United States and China (Kluwer 2011) section 4.4.5.4.1

[40] Ziyuan Li, ‘An Assessment of the Effectiveness of the Unfair Prejudice Remedy in UK Company Law: How can we Guarantee Appropriate Judicial Discretion?’ (2022) 7(2) Cambridge Law Review 72, 72–75.

[41] Jonathan Hardman, ‘An Institutional Analysis of UK Ostensible Minority Shareholder Protection Mechanisms’ (2023) 23 Journal of Corporate Law Studies 397, 397–400.

[42] O’Neill v Phillips [1999] 1 WLR 1092 (HL) 1106–08.

[43] Wells v Hornshaw [2024] EWHC 330 (Ch) [19], [208]–[209].

[44] Jonathan Hardman, ‘An Institutional Analysis of UK Ostensible Minority Shareholder Protection Mechanisms’ (2023) 23 Journal of Corporate Law Studies 397, 414–16.

[45] Companies Act 2006, s 996(1), (2)(e).

[46] Prescott v Potamianos [2019] EWCA Civ 932 [129]–[136].

[47] Prescott v Potamianos [2019] EWCA Civ 932 [139].

[48] Magic Investments SA v Broadbent [2026] EWCA Civ 711 [51]–[55].