Protection of Minority Shareholders Flashcards
How are members/shareholders defined?
Someone whose name appears on the Register of members.
How can membership be terminated?
Shares are transferred to another person
Death
Dissolution of Company
Redemption of redeemable shares
Only no longer a member when your name is off the Register of Members.
What is the Register of Members?
A list of members and their details of the shares held. If a company makes an error in this they will be liable for damages to affected members.
What is the general rule in Foss v Harbottle 1843?
Only the company has a right to sue in cases of wrongdoing, not minority shareholders.
As a result, majority shareholders will usually get their way as they have the greatest voting power and can always outvote.
There are exceptions to this rule.
When are exceptions to the rule made?
Acts are illegal
Fraud or trickery is involved
Negligence where majority profits
Where majority vote to forfeit powers of minority
What are derivative actions?
Under CA 2006 a shareholder can bring a claim on behalf of a company for a wrong done to the company by directors.
How do courts treat derivative actions?
Act as a filter system to weed out unreasonable claims.
Court demonstrates in Franbar Holdings Ltd v Patel 2008 that it will be strict with derivative actions.
How is unfair prejudice defined?
Under CA 2006, “When the company’s affairs are being conducted in a manner that is unfairly prejudicial to the shareholders generally or to some of them”.
When will the court act on unfair prejudice?
When the conduct complained of is both unfair and prejudicial to the minority. This is an objective test for the court.
When will the court wind up a company?
Under Insolvency Act 1986, where it is just and equitable.
May be appropriate in quasi-partnership, such as Westbourne Galleries Ltd 1972.
Other than winding up, what other actions can the court take?
Make regulations for the future conduct of the firm.
Injunct against acts complained (Harmer Ltd 1958 was forced to sell shares and not have presidential power)
Order purchase of shares (valuation sometimes difficult)
What happens in deadlock?
In West v Blanchet 2000, the court looked at offers from both sides and decided which would be the best action for the business.
Is motive important to the court?
In Astec plc 1999, it was held as important as minority held collateral purpose.
In London School of Electronics 1985, it was held as not important even though conduct was unfair.
Therefore, it depends on the facts of the case.
Why is a shareholder agreement important?
It can regulate the position between majority and minority by contract and pre-empt many problems.
