Company 6 Minority Shareholder Remedies

Section 994(1)

Unfair Prejudice in statute

O'Neill v Phillips

For unfair prejudice, petitioner must prove either breach of contract or some fundamental understanding

Just and equitable winding up

a winding up ordered because fairness cannot be achieved for all the members of a company.

Section 122(1)(g) Insolvency Act 1986

Any member may petition the court for the company to be wound up on the grounds that it is just and equitable to do so

Draconian Remedy

Means the court will only use it as a last resort and will pick another remedy where available

Grounds for a company being wound up

Substratum has failed, fraud, deadlock, justifiable loss of confidence in management, exclusion from participation in a small company where relationship was based on mutual confidence

Derivative Claim

Brought by a member in respect of a cause of action vested in the company, seeking relief on behalf of the company

Section 260(1)

Derivative claim may be brought any member

Section 260(3)/(5)

Derivative claim may be brought against any director and/or other person including former directors

Section 260(3)

Grounds for brining derivative claim: Any act or omission, actual or proposed, involving negligence, default, breach of duty or breach of trust by a director

Statutory protections for minority shareholders

Protection against alteration to company's constitution (s21), right to requisition a general meeting (s303-305), right to demand a poll vote (s321)

Unfair Prejudice s 994(1)

Member may apply to court by petition for an order on the grounds: that company's affair are being or have been conducted in a manner which is unfairly prejudicial to the interests of its members generally of or some past of its members/ that an actual or proposed act or a mission of the company is or would be so prejudicial

Re Legal Costs Negotiators

The majority can prevent prejudice

Re Home & Office Fire Extinguishers Ltd

Breach of implied understanding of acting properly and good faith

Re Bovey Hotel Ventures Ltd

Can bring a claim if it can be shown that "the value of the shareholding has been seriously jeopardised by reason of a course of conduct on the part of those person who have had de facto control of the company has been unfair to the member concerened

Examples of unfairly prejudicial conduct

Exclusion from management, mismanagement, breach of directors' fiduciary duties, excessive remuneration and refusal to pay dividends

Example of exclusion from management

Re Tottenham Hotspur Plc

Example of Mismanagement

Re Macro (Ipswich) Ltd

Examples of breach of directors' fiduciary duties

Re London School of Electronics

Example of excessive remuneration and refusal to pay dividends

Re a Company

Section 221

A member is a subscriber to the company's memorandum and "every other person who agrees to become a member of the company and whose name is entered into the register of members"

Blunt v Jackson

Court has the power to retrospectively amend register of members

Remedies - Section 996(1)

Court may "make such order as it thinks fit for giving relief in respect of the matters complained of"

Remedies the court could make under s996(2)

Regulate conduct of company's affairs, to refrain from doing/ continuing an act, authorise civil proceedings to be brought on behalf of the company, require not to make any/ specified alterations to its articles and provide for purchase of shares of any members of the company by other members or the company itself

Share Purchase Order

Presumption that the court will grand an order for the purchase of the petitioner shares by the company

Consequences of a just and equitable winding up petition Section 127 IA 1986

Any disposition of the company's property and any transfer of shares or alteration in the status of the company's members made after the commencement of the winding up is void

Personal Claims

Claims brought by members in relation to wrongs done to them personally

Derivative Claims

Claims brought by members to vindicate a wrong done to the company

Foss v Harbottle Rule

Only the company itself can bring proceedings where a wrong has been done to the company

Exceptions to Foss v Harbottle Rule

Where the act is ultra vires or illegal, where the act has not complied with special procedure, where the personal and individual rights of the member have been infringed, what has been done amounts to fraud of the minority and the wrongdoers themselves in control of the company

Two stage process for a derivative claim

1. Court considers if the applicant has a prima facie case for permission to continue the claim 2. A full permission hearing

Stage 1 of Derivative Claim process

To enable court to quickly dismiss cases that stand little or no chances of success

Exceptions to stage 1 of derivative claim process

Where defendant company concedes there is a prima facie caase (Franbar Holdings Ltd) or where the court is prepared to hear both stages together (Stimpson v Southern Landlord Association)

Full Permission Hearing s 263

Sets out absolute and discretionary bars for permission to continue a derivatice claim

Absolute Bars Section 263(2)

(a) if a person acting in accordance with section 172 would not seek to continue the claim, (b) where the act or omission is yet to occur, (b) where the act or omission was authorised before it occurred or has since been ratified

Discretionary Bars Section 263(3)

(a) whether the claimant is acting in good faith, (b) the importance under section 172, (c) whether the act or omission would likely be authorised beforehand or ratified afterwards (d) whether the act or omission has in fact been ratified, (e) whether the company has decided not to pursue the claim, (f) whether the member pursuing the claim could pursue it in their own rights

Rule 19.9 E Civil Procedure Rules

Allows court to order the company to indemnify claimant against any liability in respect of costs incurred in claim or permission application or both

Paramount Powders (Badyal v Badyal)

Claims can be brought on more than one ground (Unfair prejudice, just and equitable winding up and derivative claim)

Personal claims for reflective loss

If the only loss alleged to have been suffered by the shareholder is in fact a reflection of the loss sustained by the company, the courts will not allow the shareholder to bring a personal claim

Further Personal Loss

Person loss claim can be brought if the defendant's conduct was a breach of legal duty owed to member and caused them personal loss which was separate and distinct from the loss caused to the company.

Johnson v Gore Wood

Case for further personal loss

Prudential Assurance v Newman Industries

Case for reflective loss