Shareholder remedies

Question 1

Foss v Harbottle 1843

See MacDougall v Gardiner 1875

Answer 1

The claimant is the company as it is a separate legal entity

The claimant requested a vote and it was refused. Personal claim could not be brought as it was not the claimant rights that were breached but that of the company

Question 2

Edwards v Halliwell

Exceptions to the Foss v Harbottle rule

Answer 2

1. The act is ultra vires or illegal
2. The matter is one that can only be sanctioned by a special majority of shareholders
3. The personal and individual rights have been impinged upon
4. Fraud on the minority by the majority

Question 3

Carlen v Drury 1812

Answer 3

Majority rule

Court is not required on every occasion to take the management of every playhouse and brewery.

Question 4

Iesini v Westrip 2009

Answer 4

Under s263(2) 
Directors took professional counsel on actions therefore their actions were not negligent or deliberate and therefore not unfair prejudicial conduct

Question 5

What is the first stage of a derivative claim?

Answer 5

The claimant must make a prima facie case filed on evidence only. The court must grant permission for the action to be brought, must dismiss if no prima facie.

Question 7

What are the claims that can be brought?

Answer 7

S261(1) own claim
S262(2) company’s claim
S262(4) other members claim (where the company failed to prosecute diligently)

Question 8

What happens if the directors are also majority shareholders?

Wallersteiner v Moir

Answer 8

They are unlikely to vote to being a lawsuit on behalf of the company if it implicates themselves.

This is an example of the directors not acting on behalf of the good of the company

Therefore the courts must bring special measures otherwise injustice will occur

Question 9

What is unfairly prejudicial conduct?

And what Act and Sections cover this?

Answer 9

Companies Act 2006 s994-996

The companies affairs have been conducted in a way that is unfairly prejudicial to the members interests

Question 10

Re A Company 1986

Answer 10

Members interests may include legitimate expectation to continue employment as a director.

Dismissal/exclusion from mama gents may therefore be unfairly prejudicial to the interests as a member

Question 11

Re Saul Harrison & Sons 1995

Answer 11

If an informal agreement is breached then they can sue. However if there are no legitimate expectations of remaining as management/director then removing them is not a breach.

Question 12

O’Neill v Phillips 1999

Answer 12

Meaning of legitimate expectations - where a corporate power has been used to breach an informal agreement between the company management.

Question 13

What is unfairness

Answer 13

Contemplates breach of agreement , or of a duty or of a legitimate expectation

Question 14

What is unfairly prejudicial?

What case test is applied

Answer 14

Act or omission

Use the objective test from O’Neill v Phillips

Question 15

R v Noble & Sons

Answer 15

Exclusion from management is unfair prejudicial conduct

Question 16

Re London School of Economics

Answer 16

UP conduct

Diversion of business

Question 17

Re Elgindale

Answer 17

Unfairly prejudicial conduct

Serious mismanagement

Question 18

What are the remedies?

Answer 18

Regulate future conduct
Require company to refrain from act
Require company to do omitted act
Authorise civil proceedings
Prevent company from altering articles

Question 19

Just & Equitable winding up
Which section of Insolvency Act 1986

Who may petition?

Answer 19

S122(1) if the court is of the opinion that it is just and equitable to wind up a company, then it shall.

A contributory s79 CA 1985 - with a tangible interest.

Question 20

What happens to a company when it’s wound up?

Is this a common outcome?

Answer 20

It is the death of a the company

Remedy of last resort

Question 22

What does just & equitable mean?

Ebrahimi Westbourne Galleries 1973

Answer 22

Ebrahimi was removed from a director breaching the very foundations in which the company was founded.

Was just and equitable to be wound up

Question 23

Does the act/omission have to occur after the individual is a member

Answer 23

No, it is irrelevant whether the action is before or after they joined

Question 24

Stainer v Lee

Answer 24

1. When some directors would pursue the claim and others would not cannot just be dismissed
2. If the claim is strong but the remedy small it may not be worth pursuing it, although if it is very strong may be worth it to potentially allow an early settlement. If the claim is weaker but the remedy large then may not be worth pursuing it.

Question 25

Kiani v Cooper

Answer 25

1. Even if company in liquidation may be worth bringing a derivative claim as the creditors may be paid in full
2. Could order the claimants costs be paid to the company (in this case it did)

Question 26

Pender v Lushington 1877

Answer 26

An action can be brought if the voting rights of the nominee voter are ignored

Question 27

Re Bird Precision Bellows 1985

Answer 27

Valuing shares on buyout s994

It is the discretion of the court

Question 28

Winding up companies cases

Re Zinotty

Answer 28

Breakdown of mutual trust and confidence