A recent High Court decision provides a stark reminder that even dramatic share dilution, and even where company procedures have been breached, will not automatically amount to unfair prejudice.

In Ndungu v SPG Limited and others [2025] EWHC 3039 (Ch), a founding shareholder saw his stake reduced from 17% to just 0.85%, wiping millions from the value of his investment. Despite identifying procedural failings by the company, the Court rejected his unfair prejudice petition under section 994 of the Companies Act 2006.

This case highlights the Court’s focus on causation and evidence and demonstrates the very high threshold a petitioner must meet. It also underlines the significant cost and risk involved in bringing section 994 proceedings, particularly where the shareholder would not, in practice, have been able to protect their position even if proper procedures had been followed.

Background to the case

Mr Ndungu was a founder and early shareholder in SPG Limited. In 2019, he held approximately 17% of the company’s issued share capital, a significant minority stake that reflected his early involvement.

Over time, SPG raised further external investment. As is common in growing companies, new shares were issued to incoming investors. These investment rounds substantially diluted existing shareholders, including Mr Ndungu.

By 2024, his shareholding had been diluted to just 0.85%. The financial consequences were dramatic. His shares were worth approximately £264,000, compared with an estimated value of over £5 million had his 17% stake been maintained.

In 2022, Mr Ndungu issued an unfair prejudice petition against the other shareholders, seeking relief under section 994 of the Companies Act 2006.

The allegations

Mr Ndungu argued that his dilution was not an inevitable consequence of investment, but the result of deliberate and unlawful conduct by the other shareholders.

He alleged that he had been excluded from the investment rounds and that the respondents had engineered his dilution through a series of procedural and tactical manoeuvres, including:

• Meeting notices being sent to email addresses he could not access
• Missing, late, or absent offer letters
• Failures to comply with statutory and constitutional requirements
• A deliberate strategy to marginalise him and remove him from meaningful involvement in the company’s affairs

Taken together, he argued, this conduct was unfairly prejudice to his interests as a shareholder and justified court intervention.

The Court’s findings

The Court accepted that SPG had not followed the correct procedures. Required notices were not properly served, and certain statutory requirements had been breached. On the face of it, this appeared to support Mr Ndungu’s compliant.

However, the Court made clear that procedural breach alone was not enough.

The decision issue was causation. The Court explained the evidence in detail, including Mr Ndungu’s contemporaneous emails, his financial position, and his prior negotiation history with the company.

On that evidence, the Court concluded that:

• Mr Ndungu would not, or could not, have taken up the investment offers in any event
• Even if proper procedures had been followed, the outcome would have been the same
• His dilution was therefore not caused by the procedural breaches

Because the breaches did not cause the prejudice complained of, the dilution did not amount to unfair prejudice.

The Court also rejected more serious allegations that there had been a targeted conspiracy to push Mr Ndungu out of the company, or that documents had been forged or fabricated after the event to legitimise the investment rounds. Those allegations were not supported by the evidence.

Unfair prejudice requires shareholder prejudice

The judgment reaffirms a fundamental principle that is often misunderstood by petitioners. For a claim to succeed, the prejudice must be suffered in the petitioner’s capacity as a shareholder, not merely as a disappointed founder, sidelined director, or excluded participant in management.

Being unhappy with how a company is run, losing influence, or feeling marginalised is not enough. The conduct complained of must unfairly damage the shareholder’s legal or economic rights as a member of the company.

In this case, although the outcome for Mr Ndungu was severe, the Court found that it was not unfair in the statutory sense.

A cautionary tale on cost and risk

This case is also a powerful reminder of the cost, complexity, and risk of unfair prejudice proceedings. These cases are fact-heavy, document-intensive, and legally complex.

Even where a claimant attempts to represent themselves – generally a bad idea – they remain exposed to the other side’s legal costs if the claim fails. That exposure alone can be financially devastating.

In many shareholder disputes, the legal costs rapidly outstrip the value of the shares being argued about and can bankrupt even relatively wealthy individuals.

Funding a shareholder dispute

Shareholder disputes can result in high levels of legal costs. Fortunately, there are funding and insurance options available to help you conduct litigation in a cost effective manner.

Third party funding – One funding method that is commonly used for shareholder disputes is third party funding. Third party funding acts as a form of non-recourse financing for litigation. Third party litigation providers take on the financial risk of litigation so that clients can pursue a claim without having to worry about the legal fees associated with it.

In return for taking the risk, the litigation funder will typically seek a share of the proceeds in the region of a fifth to a third of any damages recovered. This means that you keep up to 80% of the reward, having taken none of the risk. If the claim is unsuccessful, the funder will lose their investment.

Damages based agreement – A damages based agreement (DBA), also known as a contingency fee agreement, is a type of arrangement made between a client and a solicitor in which the solicitor agrees to fund their case and share the risk of litigation. In return, the solicitor will be paid a percentage sum of the damages recovered as long as the client’s case is successful.

DBAs provide that, instead of being paid on a conventional hourly rate, the solicitor’s legal fees are only payable in the event that the case is successful. Therefore, these types of agreements allow clients the opportunity to pursue a case without having to worry about the solicitors’ fees associated with it. In some circumstances, however, fees for Counsel and other disbursements may still be payable by the client.

ATE insurance – After the event (ATE) legal expenses insurance is taken out after the event that has led to a dispute has taken place to protect you in the case of your claim being unsuccessful. ATE insurance can protect you from paying your opponent’s legal costs, should your claim not be successful.

However, ATE insurance is not free, and it is important to remember that if your case is successful, you may have to use some of your reward to pay the cost of the insurance premium, which will be included in the terms and conditions.

The use of third-party litigation funding, CFAs and ATE insurance can complicated, but they are simply risk management tool and when used correctly, they can make all the difference to a partnership or shareholder dispute case.

How Annecto Legal can assist

Obtaining the right guidance early – without incurring unnecessary legal fees – is often the most effective way to protect your position and manage costs.

Annecto Legal helps clients understand the value of their shareholder disputes and explores practical ways to fund and manage litigation. We work closely with litigation funders, insurers, and legal teams to provide alternatives to traditional hourly-rate funding models.

Contact an expert member of our team to discuss the most suitable litigation funding options for your situation and reduce the commercial and financial risks associated with shareholder disputes.