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Shareholders Right and Remedies Flashcards

1
Q

What is the principle governing shareholder decisions?

A

Majority rule

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2
Q

What can minority shareholders do to influence decisions?

A

Join forces with other shareholders

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3
Q

What are some common remedies available to shareholders?

A
  • Membership rights under s33 CA 2006
  • Shareholders’ agreements
  • Shareholders’ rights under CA 2006
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4
Q

What does s 33 CA 2006 state regarding membership rights?

A

The provisions of a company’s constitution bind the company and its members.

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5
Q

What is the usual remedy for breach of s 33 CA 2006?

A

Damages

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6
Q

List examples of membership rights enforced under s33 CA 2006.

A
  • Right to a dividend once declared
  • Right to share in surplus capital on winding up
  • Right to vote at meetings
  • Right to receive notice of GMs and AGMs
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7
Q

What is a Shareholders’ Agreement?

A

A contract between shareholders regulating the affairs of the company.

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8
Q

What are some typical provisions in a Shareholders’ Agreement?

A
  • Unanimous voting on certain matters
  • Quorum for GMs
  • Dividend policy
  • Allotment of new shares
  • New and departing shareholders
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9
Q

How does a Shareholders’ Agreement differ from the Articles of Association?

A

It can contain provisions that the law does not permit the Articles to include.

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10
Q

What right does a Shareholders’ Agreement provide that may not arise under the Articles?

A

Right of action to enforce provisions directly against another member

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11
Q

What is required for a removal resolution under s 168(1) CA 2006?

A

Special notice of 28 clear days

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12
Q

What happens if the board does not place a removal resolution on the agenda?

A

Shareholders may need to force the directors to call a general meeting.

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13
Q

What rights do shareholders with 5% or more shareholding have?

A
  • Require directors to call a General Meeting
  • Circulate written statements regarding proposed resolutions
  • Circulate a written resolution
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14
Q

What rights do shareholders with over 25% shareholding have?

A

Block a special resolution

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15
Q

What rights do shareholders with over 50% shareholding have?

A

Pass or block an ordinary resolution

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16
Q

What is the significance of a special resolution?

A

It requires 75% approval to pass.

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17
Q

What is the process for giving special notice of a removal resolution?

A

Notice must be given at least 28 clear days before the General Meeting.

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18
Q

What is the legal consequence if a removal resolution is passed without required unanimity?

A

The resolution is valid, but the director can claim breach of the Shareholders’ Agreement.

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19
Q

What is the threshold for passing a special resolution?

A

75% of the votes

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20
Q

What is the threshold for passing an ordinary resolution?

A

More than 50% of the votes

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21
Q

What can shareholders with 10% or more shares demand?

A

A poll vote

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22
Q

True or False: A company can use a written resolution to remove a director.

A

False

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23
Q

Fill in the blank: The usual remedy for breach of membership rights under s 33 CA 2006 is _______.

A

Damages

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24
Q

What section of the CA 2006 allows shareholders to require the board to call a general meeting?

A

s 303 CA 2006

Shareholders holding at least 5% of the paid-up voting share capital can serve a request on the company.

25
What is the timeframe for directors to call a general meeting after receiving a s 303 request?
21 days ## Footnote The meeting must be held within 28 days of the notice convening it.
26
What happens if the directors fail to call a general meeting within the specified time?
Shareholders can call the GM themselves under s 305 CA 2006 ## Footnote They must provide at least 14 clear days' notice and hold the meeting within 3 months of the s 303 request.
27
What must accompany a s 303 request?
A statement of the general nature of the business and the text of the resolution ## Footnote This may include the proposed removal resolution under s 168 CA 2006.
28
What are directors required to do upon receipt of a s 303 request?
Call a general meeting ## Footnote This must be done within 21 days and held within 28 days.
29
What rights does a director have upon receiving notice of a proposed removal resolution?
Right to make written representations and to be heard at the GM ## Footnote Representations must be of reasonable length and circulated unless received too late.
30
What is a Bushell v Faith clause?
A clause that may give weighted voting rights to a director/shareholder at a GM ## Footnote This can prevent removal by ordinary resolution.
31
What must be checked in the company's articles of association when a director is also a shareholder?
Bushell v Faith clauses and transfer provisions ## Footnote These provisions may govern how shares are treated upon a director's removal.
32
What happens if a resolution to remove a director is passed contrary to a shareholders’ agreement?
The resolution is still valid, but the director may claim breach of contract ## Footnote They could also seek an injunction to prevent a breach of the agreement.
33
What is required for a company to pay compensation to a director for loss of office?
Shareholder approval under s 217 CA 2006 ## Footnote Exceptions apply for wholly-owned subsidiaries.
34
What is a derivative claim?
A claim brought by a shareholder on behalf of the company for a cause of action vested in the company ## Footnote This is based on breaches of duty by directors.
35
What does s 260 CA 2006 allow shareholders to do?
Bring a derivative claim for breaches of statutory duties by directors ## Footnote This was introduced to provide a statutory exception to the rule in Foss v Harbottle.
36
What must a derivative claim arise from according to s 260(3) CA 2006?
An actual or proposed act or omission involving negligence, default, breach of duty, or breach of trust by a director ## Footnote This includes breaches of common law duties.
37
Who can be defendants in a derivative claim?
Directors or other persons ## Footnote Claims can also be brought against third parties under specific circumstances.
38
What principle does the case of Foss v Harbottle establish?
The company is the proper claimant in cases of wrongs done to it ## Footnote Minority shareholders cannot sue for wrongs against the company.
39
What is the purpose of shareholders' agreements in the context of removing directors?
To potentially require unanimous consent for removal resolutions ## Footnote However, this does not override the statutory right of majority shareholders under s 168 CA 2006.
40
What are derivative claims against third parties permitted in?
Very narrow circumstances, such as against a third party to a contract entered into in breach of the director’s duties, where that third party knew about the breach.
41
Who may bring a derivative claim under s 260 CA 2006?
A member of the company.
42
Can a former member bring a derivative claim?
No, a former member cannot bring a claim, even for events that occurred while they were a member.
43
What is the first stage requirement for court approval in a derivative claim?
The member must obtain the permission of the court and make out a prima facie case.
44
Under what circumstances must permission to continue a derivative claim be refused by the court?
If the court is satisfied that a person acting in accordance with s 172 CA 2006 would not seek to continue the claim.
45
What must the court consider at the second stage of a derivative claim?
Particular criteria including evidence from members with no personal interest in the matter.
46
What are the two stages in the derivative claim process under s 260 CA 2006?
Stage 1: Court decides if there exists a prima facie case. Stage 2: Detailed consideration of criteria and evidence.
47
What is the statutory right of any member under s 260 CA 2006?
To bring a derivative claim on behalf of the company against directors and third parties who have breached their duties.
48
What is unfair prejudice under s 994 CA 2006?
A member can bring an action on the grounds that the company is being run in a way that has caused them unfair prejudice.
49
What are examples of conduct that may be held to be unfairly prejudicial?
* Granting of excessive remuneration to directors * Directors dealing with associated persons * Non-payment of dividends
50
What is the difference between actions under s 994 CA 2006 and s 260 CA 2006?
Under s 994 CA 2006, the shareholder sues for themselves, while under s 260 CA 2006, the shareholder sues on behalf of the company.
51
What does s 996(1) CA 2006 allow the court to do?
Grant such order as it thinks fit to provide relief.
52
What is the most common order granted under s 996 CA 2006?
To provide for the purchase of the petitioner's shares by the wrongdoers.
53
What are the principles regarding valuation matters in unfair prejudice cases?
* Shareholders should use a valuation mechanism in the articles if fair * Courts generally do not impose a discount on minority shareholding * Valuation date is the date of the court order
54
What is a just and equitable winding up under s 122 Insolvency Act 1986?
The right for a shareholder to petition the court for the company to be wound up on just and equitable grounds.
55
What is the outcome when a company is wound up?
Its life is effectively brought to an end.
56
What can a shareholder claim under s 994 CA 2006?
That the company’s affairs are being conducted unfairly prejudicial to their interests.
57
What is the common practice when disputes over share valuations arise?
The court encourages parties to settle out of court through binding third-party valuation.
58
Is it common for minority shareholders to apply for winding up under s 122 IA 1986?
It is possible but rare.

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