Shareholders Rights And Remedies Flashcards
What are the Articles of a company and what do they do?
The Articles are written rules which act as a contract to regulate the relationship between each of the members and between the members and the company.
What is the effect of the membership rights under the Articles provision in s 33 Companies Act 2006?
The effect of the provision is that members can sue under s 33 CA 2006 if their membership rights are infringed.
What is a Shareholders Agreement and why would one be entered into?
A Shareholders Agreement is a contract between some or all of the shareholders in which they can agree how to regulate the affairs of their company. It will contain provisions the law does not permit the Articles to contain, to further govern how the company is run, such as personal rights and obligations on the shareholders.
Name some examples of topics that could form provisions within a Shareholders Agreement.
Unanimous voting over certain matters, Quorum for General Meetings, Dividend policy, Allotment of new shares, New and departing shareholders.
What is a key benefit of a Shareholders Agreement?
Unlike the Articles, a Shareholders Agreement can be kept private.
What are reserved matters in shareholder agreements and who do they protect? Give an example.
Reserved matters are matters within a Shareholder Agreement that require the consent all of shareholders or certain individual shareholders to protect the minority shareholders.
An example is a Shareholders Agreement which provides that the unanimous consent of all shareholders is required to pass a resolution to remove a director.
What is the correct threshold shareholding for a shareholder to give them the right to require the directors to call a general meeting?
5%. Shareholders together holding not less than 5% of the paid-up voting share capital can require a general meeting, by serving a request on the company.
Can a shareholder make a claim under the Articles for rights which do not relate to their membership?
No. Rights which do not relate to the shareholders membership are not enforceable under s 33 CA 2006.
Five directors in a company who are all equal shareholders wish to ensure that none of them can be removed as a director without unanimous consent, how can they do so?
By entering a shareholders agreement requiring unanimity to remove a director.
What is a special notice?
It is a notice given by shareholders proposing a removal resolution to the company at least 28 clear days before the General Meeting.
When the board receives notice of a proposed removal resolution, what are the two course of actin open to it?
1 - the board may place the removal resolution on the agenda of a General Meeting.
2 - the board may decide not to place the removal resolution on the agenda of a General Meeting.
If the board places a removal resolution on the agenda of a GM, what is the process?
The board is to give at least 14 clear days notice of the removal resolution to the shareholders. Or notice my be given by advertisement in a newspaper or any other method allowed by the company’s Articles at least 14 clear days before the GM.
What happens if the board tries to frustrate an attempt to remove a director by refusing to call a general meeting?
The unhappy shareholders may have the ability to require the directors to call a GM, or if refused again, they may be able to call the GM themselves.
Under s303(1) what voting share capital must a shareholder hold to call a GM (a s 303 request)?
Shareholders together holding not less than 5% of the paid up voting share capital of the company can serve a request on the company.
What are the directors obligations on receipt of a s 303 request?
They must call the GM within 21 days from the date on which they became subject to the s 303 request and call it to be held on a date not more than 28 days after the date of the notice calling the GM.
What happens if the directors fail to call a GM once a s 303 request is received, under s 304(1) CA 2006?
All of the shareholders who submitted the s 303 request or any of them representing more than one half of the voting rights of those who submitted the request, can call the GM themselves (s 305 CA 2006).
If the shareholders call the GM themselves pursuant to s 305 CA 2006, when must it be called and held?
GM must be called on no fewer than 14 days clear notice and held within 3 months of the date the directors received the s 303 request.
If the shareholders call the GM themselves pursuant to s 305 CA 2006, when must it be called and held?
GM must be called on no fewer than 14 days clear notice and held within 3 months of the date the directors received the s 303 request.
What is the common practice by shareholders to ensure the resolution to remove a director is heard as soon as possible?
They will submit a s 303 request requiring the directors to call a GM and at the same time send a s 312 special notice to the board.
What is the common practice by shareholders to ensure the resolution to remove a director is heard as soon as possible?
They will submit a s 303 request requiring the directors to call a GM and at the same time send a s 312 special notice to the board.
If a company receives notice that one or more members intend to propose a removal resolution, what must the company do?
The company must immediately send a copy of the notice to the director concerned, whether they choose to put it on the GM agenda or not.
When the director concerned receives a copy of the removal resolution notice, what are their rights?
The director has the right to make a representation in writing of reasonable length which should be circulated to the members of the company or read out at the GM, and the director has the right to be heard and speak in their defence at the GM.
What is the Bushell v Faith clause?
A Bushell v Faith clause may be in a company’s articles of association which gives a director, who is also a shareholder, weighted voting rights at a GM at which a s 168 CA 2006 resolution is proposed, meaning shareholders are unlikely to be able to pass an ordinary resolution to remove the director concerned.
If a shareholders agreement provides that the unanimous consent of all shareholders is required to pass a resolution to remove a director, is this enough to stop their removal?
No. The provision does not remove the statutory right of the majority shareholders to remove a director u see s 168 CA 2006 because a company is bound to accept the vote of the shareholders even if this is in breach of the provisions of the shareholders agreement.
If a shareholders agreement provides that the unanimous consent of all shareholders is required to pass a resolution to remove a director, is this enough to stop their removal?
No. The provision does not remove the statutory right of the majority shareholders to remove a director u see s 168 CA 2006 because a company is bound to accept the vote of the shareholders even if this is in breach of the provisions of the shareholders agreement.
Where a resolution is passed under s 168 CA 2006 but without the required unanimity and therefore contrary to the terms of a shareholders agreement, is the resolution valid?
Yes. The resolution would still be valid and the director would be removed from office, but the director would have a claim against the shareholders for breach of the shareholders agreement.
In the situation where a director leaves or loses their position, the company may decide to pay them compensation for loss of office if approved by way of ordinary resolution, unless what occurs?
1 - the payment together with any other relevant payments, does not exceed £200.
2 - the payment is made in good faith by discharge of an existing obligation, or by way of damages in respect of such obligation, or in settlement or compromise of a claim in connection with termination of a persons office or employment, or by way of pension in respect of past services.
What is a derivative claim?
A derivative claim is one where the shareholders right of action is not one which is personal to that shareholder but is instead derived from the company’s right of action, which the company has not exercised.
What does section 260 CA 2006 allow shareholders to do in relation to derivative claims?
It is an express right which allows shareholders to bring a derivative claim where directors have breached their statutory duties.
When can a derivative claim be brought? (Section 260(3)) CA 2006).
A derivative claim may be brought only in respect of a cause of action arising from an actual or proposed act or omission involving negligence, default, breach of duty or breach of trust by a director of the company.
Against whom can a derivative claim be brought under s260(3)?
A derivative claim may be brought against the director or another person or both, arising in respect of the actions or omissions of a director.
Who may bring a derivative claim?
Derivative claims brought under s 260 CA 2006 must be brought by a member. This can be in respect of events that occurred before they become a member as well as during, but not after.
What is the first stage of bringing a derivative claim?
At the first stage, the member must obtain the permission of the court to continue a derivative claim. The onus is on the member to make out a prima facie case in order to obtain permission.
What is the second stage of bringing a derivative claim?
At the second stage, if the application is not dismissed at the first stage, the court will consider the claim against particular criteria. The court must have “particular regard” to any evidence it has before it as to the views of the members who have no “personal interest, direct or indirect, in the matter”.
What does section 994(1) CA 2006 provide in relation to unfair prejudice?
Section 994(1) provides that a member of a company may apply to the court by petition for an order on the grounds that:
- the company’s affairs are being or have been conducted in a manner that is unfairly prejudicial to the interests of members generally or of some part of its members, or
- an actual or proposed act or omission of the company or on its behalf is or would be prejudicial.
What is the reasonable bystander test in Re Guidezone Limited?
If the shareholder can show that the company’s affairs are being conducted in a manner that the reasonable bystander would consider unfairly prejudicial to their interests, or that some act or omission of the company unfairly prejudiced them, the court will decide what remedy is appropriate in the circumstances.
What are the key principles of unfairly prejudicial conduct?
Negligent or inept management of a company - will not amount to unfairly prejudicial conduct unless the conduct amounts to serious/repeated mismanagement which puts the value of the minority shareholders interest at risk.
Disagreements at to company policy - will afford no grounds for a petition.
Bad faith - no need to show either bad faith or conscious intent for the conduct to be unfair.
Breaches of the articles of association - there ordinarily should be some breach of the terms on which agreed.
What is the most common unfair prejudice remedy?
The most commonly made order is to provide for the purchase of the petitioners shares by the wrongdoer.
What is the final and most drastic remedy available to any shareholder for unfair prejudice?
The right to bring a petition to the court for the company to be wound up on the grounds that it is just and equitable to do so.
