Shareholders' Rights and Remedies Flashcards
Which Shareholder Rights are Enforceable under Section 33?
The right to:
- Vote.
- Dividends (if declared).
- A share of surplus capital.
- Be notified of GMs and AGMs.
These are the main Membership Rights. Others include the right to:
- Commence a Derivative Claim.
- Inspect minutes and Firm registers.
- Bring a petition for unfair prejudice.
- Receive a copy of the Firm’s accounts.
- Bring a petition for a just and equitable winding up.
- Petition the Court to prevent a breach of Directors’ Duties.
If a Shareholder’s Rights are Breached, who is liable?
The Firm, usually for damages.
CA 2006 — s. 33.
How can a Shareholder establish a Right that is not a Membership Right?
- By entering into a Shareholders’ Agreement with the Firm and (or) other Shareholders.
- This allows direct enforcement of the right as a matter of contract.
Provisions in such agreements usually concern, among other things:
- Dividend policy.
- Share allotment.
- Quorum for GMs.
- The treatment of new and departing Shareholders.
- Circumstances when unanimous consent may be necessary.
If a Shareholders’ Agreement requires unanimity on a certain issue, and that requisite is not respected, what happens?
If the Resolution is legally valid, it will still pass, but the aggrieved Shareholder would have a claim against the relevant Director(s) and Shareholders.
What is a Derivative Claim?
A Shareholder’s right of action that derives from the Firm, not itself.
This allows Shareholders to, for example, claim against a Director for breach of their duties if the Firm has yet to do so.
Any remedy granted is to the Firm itself, not to the Shareholder.
You need Court permission to proceed with a Derivative Claim after Issuance.
When can a Derivative Claim be brought?
When it concerns a cause of action arising from negligence, default, breach of duty, or breach of trust by a Director of Firm.
CA 2006 — s. 260(3).
Against whom can a Derivative Claim be brought?
The Director, a Third Party, or both.
CA 2006 — s. 260(3).
Provided the cause of action arises from the Director’s failure, a Third Party can be brought on as a Defendant to the Claim.
What are the Procedural Requirements for bringing a Derivative Claim?
The Shareholder must gain permission from the Court, showing that:
- The Claim is not absolutely barred;
- The Claim has substantive merit; and that
- They have no personal interest, direct or indirect, in the matter.
CA 2006 — ss. 261-263.
What is a Claim for Unfair Prejudice?
- An allegation that the Firm’s actions or omissions, real and proposed;
- Have materially and unfairly prejudiced a Shareholder or class of Shareholders;
- According to the Reasonble Bystander Test.
CA 2006 — s. 994.
What are the Relevant Considerations for establishing Unfairly Prejudice?
- Breach of the AOAs: This is usually foundational, but there will be cases where strict adherence to legal powers is inequitable.
- Claimant Conduct: Although relevant, it is not essential that the Claimant come to court with clean hands.
- Reasonableness of Remuneration: The Court will take a wide view as to how this may have adversely impacted Shareholders.
- Legitimate Expectation of Managerial Involvement: Specifically in the case of Quasi-Partnerships, impedence of this expectation may prove strong evidence.
Neglience and Bad Faith are not necessary to establish Unfair Prejudice, and in disagreements on policy, the Business Judgement Test will be closely observed.
What are the Remedies for Unfair Prejudice?
The Court may grant whatever order it sees fit, whether that is some for of injunction or, most commonly, an order to buy out the aggrieved Shareholder(s).
You need a Court Order because any Director can refuse to recognise a Transfer of Shares.
On valuation, any mechanisms outlined in the Articles will be the first resort.
