Minority shareholder remedies Flashcards
What are the 4 ways for minority shareholders to protect their interest?
- Unfair prejudice
- Just and equitable winding up
- Derivative claims
- Personal claims and specific statutory minority rights
When is unfair prejudice most commonly used?
When the company’s affairs are being conducted in a mannter that is unfairly prejudicial to the interests of members generally or of a part of its members?
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Who sues and is sued in an unfair prejudice claim?
Shareholder sues for themselves against the company.
What are the two criteria that need to be fulfilled for an unfair prejudice claim?
- Must relate to the conduct of the company’s affairs
- Must relate to their interests in their capacity as a member
What must the conduct of the company’s affairs relate to in an unfair prejudice claim?
Act or omission of the company, or made on the company’s behalf
Do personal disputes between shareholders count towards an unfair prejudice claim?
No, unless there is overlap with conduct relating to the company’s affairs
How is the term ‘members’ construed in the context of unfair prejudice?
Widely; it includes creditors as well
What constitutes negligent or inept management in an unfair prejudice claim?
Only if it puts value of minority shareholder’s interest at risk
Do disagreements as to policy count towards an unfair prejudice claim?
No, they never count
Is there a need to show bad faith in an unfair prejudice claim?
No need to show bad faith
Are breaches of articles necessary for an unfair prejudice claim?
Not wholly necessary for a claim
What is the requirement for the claimant’s conduct in an unfair prejudice claim?
No overriding requirement to come with clean hands, but it will be taken into account
What consitutes good grounds for a claim in UP?
- excessive remuneration
- SHs with a legitimate expectation that they would be involved in management (would need to prove this)
What is the most likely remedy for UP?
Share purhcase order - an order for the purchase of the petitioner’s shares by the company or another shareholder
What is the court’s general procedure when imposing a Share Purchase Order?
- Look at the articles’ valuation mechanism
- Valuation on the date the order is made
- Generally no discount will be imposed as the SH is being forced to sell their shares
What is the purpose of s122(1)(g) of the Insolvency Act 1986?
It provides for just and equitable winding up - draconian remedy of last resort.
Who can bring a claim for winding up under s122(1)(g)?
A contributory who shows a tangible interest in the company. It is an equitable remedy, so the applicant’s conduct will be taken into account.
Who sues and is sued in a derivative claim?
Members bring a claim on behalf of the company. Directors are sued.
What is the historical stance on granting permission for derivative claims?
The court is generally reluctant to grant permission if a claim for unfair prejudice is possible, but this is not an absolute bar.
What is the rule in Foss v Harbottle?
A minority shareholder cannot sue for a wrong committed against the company if the company refuses to take action.
What is the statutory procedure exception to the rule in Foss v Harbottle?
Any member can bring a claim against any director or another person for acts involving negligence, default, breach of duty, or breach of trust.
Under what circumstances can claims against third parties be made?
Only in very narrow circumstances where they knowingly entered into a breach of directors’ duties.
What are the two stages of the statutory procedure for derivative claims?
- A prima facie case must be made to the court - permission will be refused if a member is not acting in good faith, or the breach is likely to be ratified.
- A full permission hearing where mandatory and discretionary bars apply - what will other members with no personal interest in the claim say?
How common are successful derivative claims in practice?
They are very rare; remedies are typically won by the company, although claimants can apply for costs.
