Shareholder Disputes

Shareholder disputes in Cornwall

The most Common reasons for shareholders disputes include:

  • breach of directors duties
  • company’s strategy & management
  • dividend policies
  • salary differences
  • other business interests
  • failure to provide information
  • exclusion from meetings
  • breach of shareholders agreements

Minority shareholders often feel that rights have been ignored or excluded from the management of the business. Or not received entitlement to profit share or dividends and the fact that the other shareholders are operating contrary to their interests or wishes.

Majority shareholders may have a shareholder who refuses to co-operate in the running of the business and who hinders the decision-making process causing conflict.

A minority shareholder can call upon the Companies Act 2006 where the court has a wide discretion to make such orders as it thinks fit in response to the application of any shareholder if there is unfairly prejudicial conduct.

If a court considers that there has been unfair prejudice, it has a general power to make any order it sees fit under s. 994 Companies Act 2006.

There there are many remedies but in the majority of cases involving disputes between shareholders, the court will order the purchase of the minority shares at a fair value by the other shareholders or by the company itself.

But the court has the power to wind up the company if it is just and equitable to do so.

As regards legal costs the court will prevent any attempts to use company funds by the majority shareholders in defending claims arising from a dispute between the shareholders.

The court can grant a restraining order if necessary to prevent this from happening. If the minority shareholder is successful, the respondent shareholders will be ordered to pay the minoritys costs of the proceedings.

So in shareholder disputes strategies include:

Try and do a deal

If agreement cannot be reached by one party being bought out then look at Shareholder agreements for provisions for dispute resolution.

Where a dispute arises between shareholders you need to read the Company’s Articles of Association and then s.994 of the Companies Act 2006 [see below]

If the dispute involves someone ceasing to be employed they should enter into a Compromise Agreement and independent, impartial advice is key to the validity of such agreements.

A derivative claim may be brought by a shareholder, in the name of the company subject to the permission of the court under s.260(3) of the Companies Act 2006 for the following causes of action against a director of the company, or a third party if there is Negligence , Default, Breach of duty or Breach of trust .

Duties include the duty to promote the success of the company (s.172), the duty to avoid conflict of interest (s.175) and the duty not to accept benefits from third parties (s.176).

S.994 states that a shareholder of a company may apply for an order on the ground that the company’s affairs are being or have been conducted in a manner that is unfairly prejudicial to the interests of its shareholder/s

What this means is protection for shareholders with a 50% shareholding or less where the majority shareholders seek to act in a way which is ‘unfairly prejudicial’ to their interests ie that minority shareholders have a right to complain to the court if the majority shareholder(s) run the Company in a manner that damages their position and the value of their shareholding often by misapplying or misusing Company assets.

Examples of  ‘unfairly prejudicial’ conduct are using company assets or money for the personal benefit of a shareholder or the majority shareholder(s) paying themselves far more than people in their position could objectively justify.

If you need advice in relation to a company dispute please call us on 01872 302342 or email on info@lawincornwall.co.uk and we will call you.

Please follow us on twitter; Law In Cornwall

@LawInCornwall