Shareholder remedies Flashcards
Foss v Harbottle 1843
See MacDougall v Gardiner 1875
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
Edwards v Halliwell
Exceptions to the Foss v Harbottle rule
- The act is ultra vires or illegal
- The matter is one that can only be sanctioned by a special majority of shareholders
- The personal and individual rights have been impinged upon
- Fraud on the minority by the majority
Carlen v Drury 1812
Majority rule
Court is not required on every occasion to take the management of every playhouse and brewery.
Iesini v Westrip 2009
Under s263(2) Directors took professional counsel on actions therefore their actions were not negligent or deliberate and therefore not unfair prejudicial conduct
What is the first stage of a derivative claim?
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.
What are the claims that can be brought?
S261(1) own claim
S262(2) company’s claim
S262(4) other members claim (where the company failed to prosecute diligently)
What happens if the directors are also majority shareholders?
Wallersteiner v Moir
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
What is unfairly prejudicial conduct?
And what Act and Sections cover this?
Companies Act 2006 s994-996
The companies affairs have been conducted in a way that is unfairly prejudicial to the members interests
Re A Company 1986
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
Re Saul Harrison & Sons 1995
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.
O’Neill v Phillips 1999
Meaning of legitimate expectations - where a corporate power has been used to breach an informal agreement between the company management.
What is unfairness
Contemplates breach of agreement , or of a duty or of a legitimate expectation
What is unfairly prejudicial?
What case test is applied
Act or omission
Use the objective test from O’Neill v Phillips
R v Noble & Sons
Exclusion from management is unfair prejudicial conduct
Re London School of Economics
UP conduct
Diversion of business
Re Elgindale
Unfairly prejudicial conduct
Serious mismanagement
What are the remedies?
Regulate future conduct Require company to refrain from act Require company to do omitted act Authorise civil proceedings Prevent company from altering articles
Just & Equitable winding up
Which section of Insolvency Act 1986
Who may petition?
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.
What happens to a company when it’s wound up?
Is this a common outcome?
It is the death of a the company
Remedy of last resort
What does just & equitable mean?
Ebrahimi Westbourne Galleries 1973
Ebrahimi was removed from a director breaching the very foundations in which the company was founded.
Was just and equitable to be wound up
Does the act/omission have to occur after the individual is a member
No, it is irrelevant whether the action is before or after they joined
Stainer v Lee
- When some directors would pursue the claim and others would not cannot just be dismissed
- 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.
Kiani v Cooper
- Even if company in liquidation may be worth bringing a derivative claim as the creditors may be paid in full
- Could order the claimants costs be paid to the company (in this case it did)
Pender v Lushington 1877
An action can be brought if the voting rights of the nominee voter are ignored
