5 - BL - Shareholders* Flashcards
1
Q
What remedy is available to members by reference to the articles if their rights as members are infringed?
A
They can Sue under s33 CA 2006
- Usual remedy is damages 💵
2
Q
What are the ‘members rights’?
A
- right to dividend 💵
- right to share in surplus capital 💰
- Right to receive notice of GM & AGMs 📆
- right to vote ✔️
NOTE: the right needs to be a MEMBERSHIP right to be enforceable - so rights in Articles that are not membership rights are not covered (such as right to be appointed as Sols).
3
Q
Will the court ever imply terms into a company’s Articles?
A
NO - deemed a complete contract
4
Q
Shareholders agreement
A
Constitutes personal rights and obligations on the shareholders.
Provides a right of action for members against each other.
Can enforce provisions that would not normally be regarded as membership rights (diff. to s 33).
Can be kept private UNLESS explicitly referred to in the Articles.
5
Q
Should the company be party to any terms which restrict its statutory powers?
A
No
6
Q
What if the shareholders agreement is breached?
A
- Claim for breach of contract
- Apply court for injunction
7
Q
Common matter reserved in shareholders agreement
A
Requiring the consent of all shareholders or certain individual shareholders e.g. unanimous consent
- this protects minority shareholders
8
Q
What happens if the statutory right to remove a director is used where an SA requires unanimous consent of shareholders to pass a resolution to remove a director?
A
Does NOT remove the statutory right and the resolution would still be valid (company bound to accept vote of shareholders),
but the director would have a claim against the other shareholders for breach of SA, or could apply to court for injunction.
9
Q
How are shareholders’ agreements amended compared to articles?
A
SA - unanimous approval of all parties to agreement (so minority parties can veto)
Articles - SR
10
Q
What 10 rights do all shareholders have?
A
- Receive a notice of a GM
- Appoint a proxy to attend a GM in their place
- Vote at a GM (IF they hold voting shares)
- Receive a dividend (IF declared)
- Receive a copy of the company accounts
- Inspect minutes and registers
🚨 - Ask the court to prevent a breach of directors’ duties 👮♂️🎩
8.Commence a derivative claim 🥸 - Bring a petition for unfair prejudice 💩
- Bring a petition for just and equitable winding up 💥
11
Q
Can members request to review or get a copy of the register of members?
A
Yes - they cannot be charged a fee but people who are not members an be charged a fee
12
Q
What is the process for reviewing/obtaining a copy of the register?
A
- make a request ✍️
- Company must comply within 5 working days, or 🤝
- *^apply to court** to refuse if it believes the request is not for a ‘proper purpose’ 🤬👨⚖️
13
Q
What 3 rights do holders of 5% share capital have?
A
- Require directors to call a GM 🗣️
- Require the circulation of written statements regarding proposed resolutions at a GM 🗒️
- Circulate a written resolution 📝
14
Q
What rights do holders of 10% or more share capital have?
A
Demand a poll vote
15
Q
What rights do holders of OVER 25% share capital have?
A
- Block a special resolution
(an SR needs 75% or more vote)
16
Q
What rights do holders of OVER 50% share capital have?
A
- Pass or block an ordinary resolution
NOTE: OR requires OVER 50% to pass. Therefore 50% SH can block but cannot force one through.
17
Q
What rights do holders of 75% share capital have?
A
Pass a special resolution
18
Q
Removal of Directors:
What is the section that gives shareholders the right to remove a Director?
A
S.168 CA 2006
19
Q
Removal of Directors:
What resolution is required to remove a director?
A
Ordinary resolution requiring over 50% of the vote
20
Q
Can the Board remove a director?
A
NO - unless Articles specifically provide for this
21
Q
Removal of Directors:
What notice is required from the shareholders to remove a director by s.168 CA 2006?
A
A special notice under s.312 must be issued by the shareholders to the board at least 28 clear days before the proposed GM.
⭐️📆
(Board can then choose to table the resolution at the GM or not)
22
Q
Removal of Directors:
Can a company remove a director by written resolution under s.168 CA 2006?
A
No
23
Q
Removal of Directors:
If the directors agree to a s.312 notice, how much notice must they give the members of the proposed resolution?
A
14 clear days before the GM
(which means 28 clear days between the special notice from the SH and the GM at which the resolution will be voted on.)
24
Q
What if it is not practical to give the shareholders at least 14 clear days’ notice of removal resolution? e.g. because notice of GM already sent out
A
Notice of the removal resolution can be given by advertisement in a newspaper or any other mode allowed by the Articles at least 14 clear days before GM.
25
Are directors bound to place the removal resolution on the agenda for consideration at a forthcoming GM?
NO - if it is not placed, it will not be considered.
In this case, shareholders may need to force directors to call a GM.
26
Removal of Directors:
If the directors DO NOT agree to a s.312 notice, how can the members force the issue and how many votes do they need?
5% (paid up) - Can require the directors to hold a GM under s.303 CA 2006 and may include the text they want included. This requires that the board issue a notice of a GM within 21 clear days.
- 5%
- 21 clear days
(A s.303 notice is normally issued at the same time as a s.312 notice).
NB: this is a general power and not limited to removal resolutions.
27
Removal of Directors:
What must the directors do if they receive a s303 request?
- call the GM within 21 days of the notice;
AND👈
- the GM must be no later than 28 days after the date of the notice calling the GM👉
- 50 days
So the GM to vote on the resolution can be up to 50 days of the original notice (21 days to notify GM giving 28 days notice).
28
Removal of Directors:
What if the directors receive a s303 request but do not call a GM?
- The shareholders who submitted the s.303 request (or any of them representing more than 50% of voting rights) can call the GM themselves under s.305 CA 2006
- for which they must give - 14 days clear notice
- must be held within 3 months of the date the directors received the s. 303 notice
- total of 38 days from the date of the original s.312/303 notices).???
29
Removal of Directors:
What are the time limits for the GM if the directors do not call a BM within 21 days and the members call for it themselves pursuant to a s.305 CA 2006 request?
- Must give at least **14 days** clear notice of the GM
- GM must be HELD within **3 months** of the date that the directors **RECEIVED** the s.303 request.
So, GM can be 38 days from notice (21 days for board to fail to call GM and then 14 days after members issue notice of GM)???
NOTE: the SH can recover their reasonable expenses from the company.
30
Removal of Directors:
What steps will unhappy shareholders normally take when notifying the board?
- Send a s.312 special notice
AT SAME TIME as they
- Submit s.303 request
31
Removal of Directors:
What is the timeline where the board DOES co-operate with a s.303 Notice?
Day 1 = SH issue s.303 notice
Day 22 = Board calls an GM (Board has 21 days to decide whether to call an AGM from date of notice)
Day 50 = GM held (as has to be held within 28 days from the date the board called for it)
32
Removal of Directors:
What is the timeline where the board DOES NOT co-operate with a s.303 Notice?
Day 1 = SH issue s.303 notice
Day 22 = Board decides not to call an GM (Board has 21 days to decide whether to call an GM from date of notice)
Day 23 = as board has not called an GM, the SH now can given notice of GM.
Day 38 = GM held (must have 14 days clear notice from SH) (although SH have up to 3 months from the date of s 303 request if they wish).
33
Removal of Directors:
What are the rights of the director?
If the company receives notice:
- The company must immediately send a copy of the notice to the director
- Director can provide representations in writing (must be reasonable length) and should (if company has time) be circulated to members. If no time, the reps should be read out in the GM.
- Director has right to be heard at GM whether or not they are a shareholder.
34
Removal of Directors:
What is a Bushell v Faith clause and what's its effect?
Articles may give director weighted voting rights at a GM at which a s.168 resolution is proposed.
Means it's unlikely the Shareholders will be able to remove the director.
NB: can also be found in SA.
35
Removal of Directors:
Will the removed director be entitled to any compensation?
- Any payments will need to be passed by OR unless:
a) the payment(s) does not exceed £200
b) the payment is made in good faith:
- in discharge of an existing obligation
- by way of damages for such obligation
- in settlement or compromise of a claim in connection with termination of a person's office or employment
- by way of pension for past services
NOTE: this is separate from any breaches of the dir's employment contract.
36
What can comprise payment for loss of office?
Both cash and non-cash benefits
37
Removal of Directors:
Will the payments of compensation to a director of a company's holding company also need the approval of the shareholders?
Yes (however not for shareholders of wholly-owned subsidiary)
38
Removal of Directors:
Will the payments of compensation to a director need the approval of the shareholders of the company's subsidiaries?
No
39
Can a director avoid these provisions by payment being made to a 3rd party rather than directly to director?
NO - payments made to connected persons will be treated as a payment to the director and will also require shareholder approval.
40
Removal of Directors:
What process is required for payments of compensation to a removed director?
A memo 📝setting out the particulars of payment must be made available to the shareholder for 15 days before the ordinary resolution is passed, ending with date of GM.
41
What else does the legislation require shareholder approval for in relation to loss of office payments?
1. made by any person to a director in connection with the transfer of the whole or part of the undertaking or property of a company.
2. made by any person to a director in connection with a transfer of shares in the company, or one of its subsidiaries, resulting from a takeover bid.
42
Derivative claims:
What is a derivative claim?
🥸
A claim that is derived from the company's right of action, which the company has not exercised.
Made ON BEHALF OF the company.
NOT personal to the shareholder - derived from the COMPANY's right of action.
43
Derivative claims:
What is the legislation for bringing a derivative claim?
🥸
s.260 CA 2006
44
Derivative claims:
In what circumstances can a derivative claim be brought?
🥸
- Where the directors have breached their statutory duties (also includes common law duty breaches). 💥
- director need not have benefited from the breach 💰❌
- brought in respect of a cause of action arising from
- ACTUAL💥or PROPOSED💡 ACT or OMISSION🫥 involving
- NEGLIGENCE, DEFAULT, BREACH OF DUTY OR TRUST by a
- DIRECTOR🎩 of the company."
45
Against whom can the derivative claim be brought against?
the director or another person (or both)
However, a cause of action will only arise in respect of the actions or omissions of a director
46
Which types of directors does a derivative claim extend to?
Includes shadow directors as well as former directors.
47
Who is the remedy granted to for a derivative claim?
The company itself NOT the shareholder bringing the claim
48
Derivative claims:
Can third parties (other than directors) be defendants to a derivate claim?
🥸
Yes, but the claim has to be in respect of a breach by a director.
😔🎩
49
Derivative claims:
Who can bring a claim and does it matter when the cause of action occurred?
A member can bring the claim
but it's immaterial whether they were a member when the breach occurred (so can be for a breach from before they were a member).
However: a former member CANNOT bring a claim.
50
Derivative claims:
How many stages are there in bringing a derivative claim?
Two
51
What is the first stage of a derivative claim?
Obtain permission to continue the claim. The onus is on the member to make out a prima facie case.
🧑⚖️👉
52
What are the circumstances where permission to continue the claim MUST be refused by the court?
Where the court is satisfied:
1. That a person acting in accordance with the DUTY to promote the success of the company would NOT seek to continue the claim, OR
2. Where the cause of action arises from an act or omission that is YET TO OCCUR, that the act or omission has been AUTHORISED by the company, OR
3. Where the cause of action arises from an act or omission that has ALREADY OCCURRED, that the act or omission:
- was AUTHORISED by company before it occurred, OR
- has been RATIFIED by the company since it occurred.
53
What factors must the court take into account in relation to stage 1 and when?
When the circumstances are not such as to be an absolute bar to the claim continuing.
Include:
- whether the member is acting in GOOD FAITH
- whether the act or omission which gave rise to the cause of action would be LIKELY to be RATIFIED by the company
54
What is the second stage of a derivative claim?
The court will consider the substantive claim.
55
When considering a derivate claim, what must the court have particular regard to?
Evidence: the views of the members who have no personal interest in the matter
56
Unfair Prejudice:
Who can apply for Unfair prejudice order under s.99
💩
A Member (they sue for themselves, unlike in a derivative claim)
57
Grounds of unfair prejudice claim
a) that the company’s affairs are being or have been conducted in a manner that is unfairly prejudicial to the interests of members generally or of some part of its members (including at least that shareholder), or
b) that an actual or proposed act or omission of the company (including an act or omission on its behalf) is or would be so prejudicial
NB: must show this in terms of the REASONABLE BYSTANDER test (objective)
58
Unfair Prejudice:
Is negligent or inept malmanagement 'unfair prejudice'?
🤡💩
No
UNLESS that conduct amounts to serious and/or repeated mismanagement which puts at risk the value of the minority shareholder’s interest
59
Unfair Prejudice:
Are disagreements as to company policy unfair prejudice?
💩
No
60
Unfair Prejudice:
Does the claimant need to show bad faith?
💩😈
No
61
Unfair prejudice:
Can the claimant claim in relation to breaches of articles?
Not generally
UNLESS there has been some breach of the terms on which he agreed that the affairs of the company should be conducted
62
Unfair Prejudice:
Does the claimant have to come to the court with clean hands?
😈🤲
No (but may be relevant consideration)
63
Unfair Prejudice:
Can Legitimate Expectation form the basis of unfair prejudice?
💩
Yes - especially in small companies where the shareholders expect to be involved in the management of the company.
64
Unfair Prejudice:
What are the remedies for UP and what is the most common remedy?
💩
- The court has such power to grant such order as it thinks fit
🦸
- the most common order is the repurchase of the petitioner's shares by the wrongdoer.
👉🏭
65
Unfair Prejudice:
How are shares valued?
💩What is the valuation date?
a) use the valuation method in the articles (if any, provided it is fair)
📝
b) apply to court
- court will not normally apply a discount on minority shareholding
- court may order discount if shareholding is viewed as investment or company more commercial
Valuation date is the date of the court order in respect of sale shares
- behaviour of claimant may be relevant e.g. if they previously rejected a reasonable order.
66
Just and equitable winding up:
When will a winding up apply?
💥
just and equitable to do so.
⚖️
NB: court has discretion to decide this.
67
What are the main rights and remedies available to shareholders?
- shareholder agreements 🤝
- membership rights 🧔♀️
- shareholders rights under 2006 s.33
- removal of directors 🎩💥
- derivative actions 🥸
- unfair prejudice 💩
- just and reasonable winding up 💥
68
What % of shares is required to ask the court to prevent a breach of directors’ duties
Any shareholder
69
What % of shares is required to commence a derivative claim?
Any shareholder
70
What % of shares is required to petition for unfair prejudice?
Any shareholder
71
What % of shares is required to petition for just and equitable winding up?
Any shareholder
72
What % of shares is required to call a GM
5%
73
What % of shares is required to circulate a WR
5%
74
What % of shares is required to require the circulation of a written statement regarding proposed resolutions to be considered at GM?
5%
75
What % of shares is required to demand a poll vote
10%
76
What % of shares is required to block a special resolution?
More than 25%
77
What % of shares is required to pass or block a OR
50% block
Over 50% pass
78
What % of shares is required to pass a SR
75%
79
Can directors who are also shareholder vote as members on resolutions for their removal?
Yes
80
What’s is a s.312 notice?
A notice by the shareholders that they want a removal resolution under s.168. Must be served 28 days before the GM.
81
What is a s.303 notice
Request by 5% of members requiring board to call a GM.
Directors must give convening notice a GM within 21 days from the date of the s.303 notice to be held within 28 days of the convening notice.
If, by the 21st day the directors haven’t called the GM, 51% of the members behind the s.303 notice can call a GM under s.305 with 14 clear days notice up to 3 months of the date the 303 request was received by directors.
82
When is a s.303 notice typically issued
A s.303 notice demanding notice of a GM is given within 21 days of the notice is normally issued at the same time as a s.312 special notice of the removal of a director.
83
What resolution is required to change a company name?
Special resolution
84
If voting is tied, does the chairman get the casting vote?
No - not in 2006 companies
85
What is required to alter articles?
- special resolution
AND
- interest of the company as a whole (minority interests considered here).
86
If a special resolution is called but no Poll, how does voting work
Each member has one vote regardless of shares. Therefore, a resolution could be passed with fewer than 75% of the voting shares.
