In many cases particularly quasi partnerships such disputes are regarded as the corporate equivalent of a divorce. They can be just as messy, expensive, bitter and full of personal attacks and recriminations.
Firstly, consider your contractual rights under both the articles of association of the company or any separate shareholders agreement which provided it has been drafted correctly by your solicitors will provide a mechanism for resolving such problems.
Failing that, there is statutory protection for an unfairly prejudiced shareholder under Section 994 of the Companies Act 2006.
This provides that:
“A member of a company may apply to the court…. on the ground that the company’s affairs or have been conducted in a manner that is unfairly prejudicial to the interest of its members generally or of some part of its members….”
This section provides minority shareholders (less than a 50% holding) with statutory protection against unfairly prejudicial conduct which can include such matters as:-
- Deadlock where there is a quasi partnership
- Minorities unlawfully excluded from the management or strategy of the company
- Directors voting themselves too much salary and benefits at the expense of dividends/shareholders
- Breaches of shareholders agreements
- Failing to provide accounts financial information and hold statutory meetings
These are just some of the many examples of unfairly prejudicial conduct which has resulted in claims being made.
HOW CAN I FUND THE DISPUTE WHEN THE COMPANY IS FIGHTING ME?
It is well established that the courts will not allow shareholders who are in dispute with other shareholders to use company monies to fight shareholders in these circumstances.
If the minority shareholder is successful in the claim then the shareholders will be ordered to pay the minority shareholders costs.
REMEDIES
If the court finds unfair prejudice, the court has a general discretion to make any order it sees fit. Such orders could include:-
1) The winding up and or dissolution of the company
2) The court ordering one party usually the majority and or the company to purchase the minority shares at a fair value.
3) Readjustment of previous distributions including excessive salaries and benefits paid
4) The imposition of management and financial controls
ANY ALTERNATIVE RIGHTS?
Section 260 to 269 of the Companies Act 2006 has brought in for the first time a derivative action which entitles a shareholder (subject to the courts permission) to bring a derivative action on the companies behalf against a director. In essence these actions originate from the common-law fraud on minority cases which were recognised in the case of Foss v Harbottle. Now such rights have statutory protection which allow a shareholder to bring an action in the name of the company against directors of a company or third party: where there has been:-
1) A fraud on the minority
2) Breach of duty or breach of trust
3) Negligence or default on behalf of the directors
At Langleys we specialise in such actions and would be happy to advise if you are faced with such situations what steps you should be taking. Please consult with our Dispute Resolution Team.