7e Rights of Minority Shareholders

Question 1

What rights do minority shareholders have?

Answer 1

• Any member can apply to court to prohibit a payment out of capital by a private company.
• Any member can prevent the registration of a limited company as an unlimited company.
• > = 5% can force the inclusion of a resolution on the agenda of the AGM.
• > = 15% Apply to court to cancel a variation of class rights
• > = 25% Defeat a special resolution to alter name, alter articles and reduce share capital or wind up company.

Question 2

What are the 3 legal actions available to minority shareholders?

Answer 2

• Derivative action
• Claim for unfairly prejudicial conduct
• Claim for just and equitable winding up

Question 3

What is a derivative action?

Answer 3

Claim on behalf of the company against the directors for breach of duty of negligence.

Question 4

Re a derivative action, what will the court consider?

Answer 4

• Whether the member is acting in good faith.
• Whether the company had decided not to pursue the claim.
• Views of members with no personal interest.
• Whether the member has the ability to pursue the matter in their own right rather than on behalf of the company.

Question 5

Re derivative action, what needs to be satisfied for the court to refuse permission?

Answer 5

• Act was authorised beforehand or ratified subsequently.
• A person acting in accordance with the duty to promote the success of the company would not seek to continue the claim.

Question 6

Re derivative action, the court may relive a Director of liability if it considers what?

Answer 6

• They acted honestly and reasonably
• They ought fairly to be excused

Question 7

Re protection against unfairly prejudicial conduct, list examples of when conduct was deemed unfair prejudice.

Answer 7

• Shareholder dismissed as a director, they may be unfairly prejudiced if company is a quasi-partnership.
• Failure to pay dividends or call a General Meeting.
• Improper allotment of shares which allowed majority shareholder to increase their holding.
• Divert business opportunities from the company.

Question 8

Re protection against unfairly prejudicial conduct, in order to claim relief, what criteria must be met?

Answer 8

• Petitioner just be a member of the company and complaint must be based on prejudice to them as a member.

Question 9

Re protection against unfairly prejudicial conduct, if the petition is successful, the court will order whatever it sees fit which is usually what?

Answer 9

• Require company or members to purchase shares at fair price.
• Authorise court action in company’s name.
• Regulate future conduct of the company’s affairs.
• Order company to or not perform an act.

Question 10

Re just and equitable winding up, the member must show what?

Answer 10

That there this no other suitable remedy available.

Question 11

Re just and equitable winding up, under what circumstances is this the only remedy available?

Answer 11

• Company was initially formed for illegal/fraudulent purpose.
• Complete deadlock in management of company’s affairs.
• Shareholders have lost confidence in company’s management.