10. Member remedies Flashcards
If a third party causes loss to both the company and its members, can both sue to recover their loss?
A third party may cause loss to both the company and its members. And as a general rule both have a right to sue to recover their losses.
Re: Pender v Lushington
What is the no-reflective loss principle?
If a loss is made to the company and the member, and that it is reflective (e.g. the share price decreases) the company should recover the loss and the member shouldn’t make a claim. So the company should claim and the member should not, as the company’s claim will ‘trump that of the shareholder’.
In what situation will the no-reflective loss principle not apply?
Giles v Rhind – one member caused the company to go into insolvency, the company couldn’t afford litigation, so the member bought about the claim as a personal action.
The no reflective loss principle will not apply where the actions of a person have caused a member loss and that loss is reflective of that of the company, but the company is unable to claim due to the loss it has sustained.
“A situation in which the wrongdoer has disabled the company from pursuing that cause of action”.
What is the difference between a representative action and a group litigation order?
Where more than one person has the same interest in a claim then representative action can be commenced, obtaining the same remedy.
If differing members wish to obtain different remedies then a GLO order will be preferable.
What two principle form the rule of Foss v Harbottle
The proper claimant principle – only the company can sue for redress and not the members if the company is wronged
The irregularity principle – member cannot bring a claim in relation to an irregularity that could be remedied or ratified by a simple majority of the members (50% or more)
In what situations could a common law derivative action be bought?
4 instances:
- Where the act complained of was illegal or ultra vires
- Where the act complained of infringed the personal rights of a member
- Where the act complained of could only be done or sanctioned by the passing of a special resolution (so was done at ordinary resolution or majority)
- Where the act complained of constituted a fraud on the minority (fraud on the minority shareholders)
Re: Edwards v Halliwell
What is a derivative claim and what causes of action can form the basis of a derivative claim?
A derivative claim can be bought about by a member in respect of a cause of action vested in the company, which seeks relief on behalf of the company. This means that the director must have done something specifically to the company and not to the member.
A derivative claim can only derive from an actual or proposed act or omission involving negligence, default, breach of duty or breach of trust.
The common law derivative claim has now been replaced by the statutory claim under s.260 CA 2006 (there are rare circumstances that still use derivative claim under common law on p188).
Briefly explain the process used by the court to determine whether a derivative claim should be permitted to continue
3 stages
1st stage – prima facie – is there a case to be heard on the evidence that has been provided. Rule out any frivolous claims. There are grounds for a case.
2nd stage – the court then decides whether permission to continue should be granted. Section 263 sets out circumstances where permission would be refused, and section 263 (3) and (4) sets out factors that must be taken into account by the court when deciding whether to grant permission for the claim to continue (page 140 new text)
A s 994 petition (unfair prejudice) can be made by which parties?
Can be made by a member of the company, any member may petition the court (s112)
There are 2 scenarios when non-members may also petition the court:
Someone who isn’t a member has been transferred or transmitted shares by the operation of law
The secretary of state may bring a petition on certain circumstances – although rare
A s 994 petition can be bought against what parties?
994 1 a – can be bought against a wide variety which includes the company, members, directors and third parties.
994 1 b – something that the company has done, omission of the company is unfairly prejudicial to the interest of the members.
Provide 8 examples of conduct that has been held to amount to unfairly prejudicial conduct?
Abuse of a controlling position, e.g. selling company assets at an undervalue to another company that they control
Serious mis management of a company
A breach of directors’ duties
A breach of a company’s constitution or statutory rights
Criminal conduct (case of Bermuda cabletelevision)
Exclusion from management of a quasi-partnership company (Ghyll Beck Driving Range ltd )
A failure to consider paying dividends (case of McCarthy, also Sam Weller & Sons)
Give 5 examples of the types of remedy that the court can order under s996
A court can make any order it sees fit but some include:
Conduct of the company’s affairs in the future
An order requiring the company to refrain from doing an act complained of, or perform an act that it has failed to perform
An order authorising civil proceedings to be bought in behalf of the company
An order requiring the company not to make any alterations in its articles without the leave of the court
An order providing that the purchase of the shares of any members of the company by other members or by the company itself
When determining the value of shares (in share purchase orders) when will the court discount the price of the shares?
“Dominant concern is that the price fixed by court is fair”
Only if they are a minority shareholder and to reflect their lack of control (case of Elgindata)
Can the court wind up a company under s996?
Conflicting views exist
Cases apex global management and full cup international trading
What is a contributory?
A contributory is a person that is liable to contribute to the assets of the company in the event of it being wound up. E.g. a shareholder that hasn’t paid up in full on their shares
