Minority shareholder remedies

Question 1

Derivative claims

Answer 1

Shareholders can bring a derivative claim on behalf of the company where the directors have breached their statutory duties.

Requirement for court approval, stage 1: member must obtain permission of the court to continue a derivative claim (member should make a prima facie case in order to obtain permission and act in good faith). Court must refuse permission if satisfied that a person acting to promote the success of the company would not seek to continue the claim.

Requirement for court approval, stage 2: court must have ‘particular regard’ to any evidence it has before it as to the views of the members who have no ‘personal interest, direct or indirect, in the matter’ (safeguard that ensures proceedings are not against the wishes of the general body of shareholders).

The courts have generally adopted a restrictive approach in denying
permission to continue derivative claims in a large number of cases.

Question 2

Unfair prejudice

Answer 2

A member can bring an action on the grounds that the company is being run in such a way that they have suffered unfair prejudice.

Examples: very serious/repeated mismanagement, legitimate expectation (small private companies)

A negotiated settlement is usually a preferred option (otherwise, court will value the shares and the process is costly)

Question 3

Just and equitable winding up

Answer 3

The right to bring a petition to the court for the company to be wound up (liquidated) on the grounds that it is just and equitable to do so.

Examples: being excluded from decision-making, breakdown in relations (especially in a quasi-partnership)