Shareholders Rights And Remedies

Question 1

can memebers sue under s33 ca (membership rights under the articles) if these rights are infringed

Answer 1

yes - remedy most likely to be damages

Question 2

what are rights have been considered memebrship rights in the past under s.33 CA

Answer 2

right to a dividend once it has been lawfully declared;
right to share in surplus capital on a winding up;
right to vote at meetings; and
right to receive notice of GMs and AGMs.

Question 3

will the court every imply any terms into a companys artciles

Answer 3

no - does not mayyer if it would create business efficacy the companys articles are alwyas treated to bhea complete contract

Question 4

what do the provisions in shareholder agreements constitute

Answer 4

personal rights and obligations on the shareholders

Question 5

can shareholder agreements be kept private

Answer 5

yes - unless they are referred to in the articles

Question 6

should a company be party to a sharholder agremment

Answer 6

yes this is fine BUT should not be party to any tersm that restrict its statutory power - risk these terms/ the agreemnet being void

Question 7

can shareholder agreements be inforced by one shreholder directly againts another shareholder

Answer 7

yes - if breached can be enforced under general contarct law principles. can apply for breach sof contract or an injunction to prevnet a breahc

Question 8

if the shareholder agreement requires unanimity for removal of a director can they still be removed by simple majority?

Answer 8

Where a removal resolution is passed without the required unanimity, provided a simple majority voted in favour (in accordance with CA 2006), the resolution would still be valid, and the director would be removed from office. The director would then have a claim against the other shareholders for breach of the Shareholders’ Agreement. The threat of a breach of contract claim effectively means that the minority shareholder is able to
influence whether or not the resolution is passed.

Question 9

what righst do every shareholders have

Answer 9

Receive notice of GM
Appoint proxy to attend GM in their place
Vote at a GM
Receive a dividend (if declared)
Receive a copy of the company’s accounts
Inspect minutes and company registers
Ask the court to prevent a breach of directors duties
Commence a derivative claim
Bring a petition for unfair prejudice
Bring a petition for just and equitable winding up

Question 10

What can shareholders with 5% or more shares do

Answer 10

Require directors to call a GM
Require circulation of written statements regarding proposed resolutions to be considered at GM
Circulate a written resolution

Question 11

What percentage shareholding is needed to be able to demand a poll vote

Answer 11

10% or more

Question 12

Who do the articles act as contract between

Answer 12

The members (in their capacity as members) and the company

Question 13

In regard to removal of a director can directors who are also shareholders vote in their capacity as a shareholder on the ordinary resolution to remove them

Answer 13

Yes

Question 14

What notice is required for a removal resolution

Answer 14

28 clear days

Question 15

Can written resolution be used to remove a director

Answer 15

No

Question 16

What is special notice

Answer 16

Shareholders proposing a removal resolution must give notice of that proposed removal resolution to the company (ie to the board of directors) at least 28 clear days before the General Meeting (‘GM’) at which the removal resolution will be voted on by shareholders (ss 312(1) and 360(1) and (2) CA 2006). This is known as special notice

Question 17

If the board decides to place the removal resolution on the GM agendas what needs to be done

Answer 17

Give shareholders notice as it does for all GMs - 14 clear days of GM
If that is not practical (eg because notice of the general meeting has already been sent out), notice of the removal resolution may be given either by advertisement in a newspaper or any other mode allowed by the company’s Articles at least 14 clear days before the GM(ss 312(3) and 360(1) and (2) CA 2006).

Question 18

What can shareholders do if removal resolution is not placed on agenda of GM

Answer 18

Under s 303(1) CA 2006, shareholders together holding not less than 5% of the paid up voting share capital of the company can serve a request on the company ie the board. The request will require the board to call a GM (a “s 303 request”).
A s 303 request must state the general nature of the business which the shareholders wish to be dealt with at the GM and may include the text of the resolution they want proposed at the GM (here, to consider a removal resolution pursuant to s 168 CA 2006).

Question 19

What are the effects of s303 notice

Answer 19

Unhappy shareholders give special notice to the Board AND serve notice under s 303
Board has 21 days to decide whether to call a GM
If the board decides to call a GM, it has to be held within 28 days from date of calling it
If the board decides not to call GM: Shareholders can call GM on normal notice. GM must be held within 3 months of s 303 request

Question 20

What should the board do with a special notice once they receive it

Answer 20

company must immediately send a copy of the notice to the director concerned (s 169(1) CA 2006). Note that even if the Board decides not to put the removal resolution on the agenda of a GM, it is obliged to send the special notice to the director concerned.

Question 21

What right does the director have to protest removal

Answer 21

The director then has the right to make representations in writing provided those representations are of a reasonable length (s 169(3) CA 2006).

In any event, the director concerned has a right to be heard ie to speak in their defence at the GM, whether or not they are a shareholder

Question 22

What is a bushell v faith clause

Answer 22

A Bushell v Faith clause in the articles of association may give a director, who is also a shareholder, weighted voting rights at a GM at which a s 168 CA 2006 resolution is proposed. This is likely to mean that shareholders are unable to pass an ordinary resolution to remove the director concerned.

Question 23

Can the company articles be amended to require unanimity to remove a director

Answer 23

No, this would undermine the statutory right to removal by ordinary resolution and would be void.

Question 24

Can a company pay compensation to a director who leaves office

Answer 24

Yes but This will require shareholder approval under s 217 unless one of the exceptions apply.

Question 25

What is a derivative claim

Answer 25

Claim initiated by a member of a company, rather than by the company itself:
a) in respect of a cause of action vested in the company; and
b) seeking relief on behalf of the company
Note that any remedy granted is granted to the company itself and not to the shareholder bringing the claim.

Question 26

When can a derivative claim be brought

Answer 26

Where directors have breached their statutory duties - 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.

Question 27

Can derivative claims be brought against shadow and former directors and third parties

Answer 27

Yes - third parties only in very limited circumstances

Question 28

Can a former member bring a claim even in relation to events which occurred when they were a member

Answer 28

No - only current members can bring a claim as the cause of action is vested in the company, rather than the member.

Question 29

Is court approval required when bringing a derivative claim

Answer 29

Yes - the member must make out a prima facie case in order to obtain permission.

Question 30

When will the court refuse permission to bring a derivative claim

Answer 30

where the court is satisfied that a person acting in accordance with s 172 CA 2006 (the duty to promote the success of the company would not seek to continue the claim.)

Question 31

What factors will be taken into account when the court are deciding whether to let a derivate claim to continue

Answer 31

include whether the member is acting in good faith and whether the act or omission which gave rise to the cause of action would be likely to be ratified by the company.

Question 32

What is the next stage of allowing a derivative claim if it gets court permission

Answer 32

The court will have detailed consideration of criteria, including evidence from other members

Question 33

What are unfair prejudice proceedings

Answer 33

Section 994 CA 2006 allows a member to bring an action on the grounds that the company is being run in such a way that they have suffered unfair prejudice.

Question 34

What are examples of conduct that may be held to be unfairly prejudicial to the interest of members

Answer 34

• the granting of excessive remuneration to directors;
• directors’ dealing with associated persons; and
• non-payment of dividends.

Question 35

Will negligent or inept management of a company amount to unfair prejudice

Answer 35

No, unless that conduct amounts to serious and/or repeated mismanagement which puts at risk the value of the minority shareholder’s interest.

Question 36

Do disagreements as to company policy amount to unfair prejudice

Answer 36

No e.g. change in direction of business

Question 37

Does their need to be bad faith for an unfair prejudice claim

Answer 37

No - there is no need to show either bad faith or conscious intent for the conduct to be unfair

Question 38

Do the company’s articles of association need to be breached for an unfair prejudice claim

Answer 38

Usually yes but not always.
Lord Hoffmann in O’Neill v Philips:“a member of a company will not ordinarily be entitled to complain of unfairness unless there has been some breach of the terms on which he agreed that the affairs of the company should be conducted… [However,] there will be cases in which equitable considerations make it unfair for those conducting the affairs to rely upon their strict legal powers”;

Question 39

Is there a requirement for the claimant to come to the court with clean hands when making an unfair prejudice claim

Answer 39

No - although the conduct of the claimant may be relevant in deciding whether the prejudice was unfair, there is no overriding requirement that the claimant come to court with “clean hands;

Question 40

Will the court take a wide view of the prejudice that may be suffered by a minority shareholder

Answer 40

Yes - especially in relation to excessive remuneration

Question 41

in terms of certain small private companies (which are often referred to as quasi-partnerships, case law has established that shareholders may have a legitimate expectation that they be involved in the management of the company, could the prevention of such involvement equate to unfairly prejudicial conduct.

Answer 41

Yes

Question 42

What is the most common remedy for an unfair prejudice claim

Answer 42

Provide for the purchase of the petitioner’s shares by the wrongdoer(s)

Question 43

How are the shares valued when purchase of shares is order as a remedy for unfair prejudice

Answer 43

Courts will aim to set a fair price
• Shareholders should first attempt to use a valuation mechanism set out in the articles (if any) provided that it is fair. However, if there is no fair method then a court valuation will be necessary.
• The courts will generally not impose a discount on the value of a minority shareholding in a private company, on the basis that the minority shareholder is being forced to sell their shares because of the unfairly prejudicial conduct of the majority shareholder. This is particularly the case where the company has been controlled and operated by all the shareholders playing major roles (a quasi-partnership). However, the court may order a discount to be applied if the shareholding is viewed as an investment or the company is operated along more commercial lines.
• As a general rule the valuation date is that on which the court order was made in respect of the sale shares.
The behaviour of the claimant/petitioner may be relevant eg if they previously rejected a reasonable offer.

Question 44

What is the most drastic option for a disgruntled shareholder

Answer 44

The right for a disgruntled shareholder to apply for the company to be wound up on the grounds that it is just and equitable to do so arises under s 122(1)(g) Insolvency Act 1986.