UPP Flashcards
Define Derivative Action
Where a minority shareholder uses the law to enforce directors duties to protect their interests in the company.
What are the issues with Derivative action?
1)Member of company cannot rely on it when on general’s company wrongdoing, rather direct infringement of shareholder’s rights. 2)Also numerous obstacles makes it more a company remedy, than an individual shareholder
What are the alternatives to Derivative Action?
A member of the company can make a winding order through the court. Here a company is legally broke down and its assets are shared among shareholders, provided it is equitable to do so.
However, court reluctant to do so because of irreversible nature.
Where in Consumer Act 2006 can a company of person bring Action?
A person can bring action for an Unfair Prejudice Petition, s994.
Outline s994(a) CA 2006
Member of company may apply for petition on grounds:
Company’s affairs are being or have been conducted in a way that is unfairly prejudicial to the interests of members
Outline s994b CA 2006
Actual or proposed action or omission of company is or would be unfairly prejudicial
Who are likely to bring this action?
Most likely to be minority shareholders because majority shareholders can make changes where necessary, for example, the board.
In Re Fulham Football Club Ltd, what was the principle?
Highlighted the possibility of contracting out s994.
Who are likely to be respondents to UPP?
Likely to be those members or directors in control?
What are the 3 parts to s994?
1) Petition must relate to past and future conduct of company’s affairs
2) These must affect the company’s interests - individually or collectively
3) Must relate to conduct unfairly prejudicial to these interests
Define “conduct”
Any single act or omission of company - does not require continuous series
Define “Company Affairs”
Company affairs refer to all management and decisions relating to this.
Issue 1
UPP does not cover actions of anyone not a director
Explain the facts in Legal Costs Negotiators Ltd
UPP brought against member of company that had retired directorship but refused to sell his shares. However failed because this did not constitute conduct of company affairs because it was not authorised by the board. Rather it was an act by an individual shareholder acting in their private capacity.
Explain facts in Re Home Fire Extinguishers Ltd
Conversely, private conduct here was considered company affairs as it hindered workings between directors and shareholders.
Explain the facts in Re Chaterbridge Capital
Although company’s affairs is wide enough to cover directorial decisions, it does not cover activities or individual shareholder acting in a private capacity.
What is the second issue with UPP?
Does it cover acts done by or on behalf of the company’s subsidiary?
What are the facts of Nicholas v Soundcraft Electronics?
Parent company withholding payment of debts to subsidiary, could amount to conduct in affairs of subsidiary affairs due to exercise of control they have over subsidiary. Therefore, parent conduct could be considered of subsidiary.
What are the facts of Re City Branch Group Ltd, Gross v Rackind?
Conduct of subsidiary can be considered conduct of the parent where there is greater similarity between the companies, in terms of the board.
What are the facts of Oak Investment Partners v Boughtwood?
A purposive interpretation of s994(1) should be adopted by considering any intention behind an act, to address the practical reality within the company.
Who does members interests refer to?
Section 994 refers to members whose interests were affected by the company’s interests. If not affected, not able to bring UPP. Does not cover interests qua director, employee or consultant of company.
What is the rule in Re Phoenix Contracts Leicester
Courts have shown exceptions and are willing with smaller companies to protect employee rights if directly linked with share ownership.
What are the broad interpretation of what counts as member interest?
Re Company: interests of members are not strictly limited to legal interests under constitution. Use of word “unfairly” in s994 enables courts to consider wider equitable elements.
Example to reinforce Re Company
Director of large public company; who is also owner of small holding company in shares. Here it is easy to differentiate interests as managing director employed under service contract and interests as member.
