Shareholder Disputes

29th July 2022

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by Joshua Shuardson-Hipkin, Solicitor, Civil Litigation Department

What options do I have as a minority shareholder if I am unhappy with the way the company is being run?

We are regularly instructed on behalf of Clients who are minority shareholders of companies and have concerns about the way the wider company is being run. A ‘minority’ shareholder is one who holds less than 50% of the voting shares within the company and accordingly limited power to influence the company’s day to day decision making. Examples of conduct in this regard could include the following:

  • Misuse of misappropriation of Company assets.
  • Mismanagement of the Company.
  • A failure to pay dividends.
  • Fraud
  • Payment of excessive remuneration.
  • Acts seeking to ‘dilute’ the interest of a minority shareholder.
  • A failure to abide by the Company’s articles of association.
  • Deadlock – where no agreement can be reached on a decision.
  • Breaches of Director’s Duties owed to the Company.
  • Any other forms of ‘inequitable conduct’ which causes a breakdown of trust and confidence.

In the event that a dispute arises over the way in which a Company is run, being a minority shareholder can be extremely daunting, not least because it can have a detrimental impact on the value of the shares held. This, coupled with the stress that disputes can bring, can leave shareholders feeling like they have nowhere to turn.

Notwithstanding the above, there are a range of options available to protect minority shareholders, and Joshua Shuardson-Hipkin from our commercial litigation team can advise on all the options open to you for your specific circumstance(s).. These may include (but are no means limited to) the following:

Negotiation / Alternative Dispute Resolution

The starting point in a dispute over shares is to write to the majority shareholders setting out any concerns and seeking to reach a settlement amicably. This approach is geared towards avoiding formal court proceedings, and opening discussions to resolve the matter. A further option is for the parties in dispute to attend a mediation, or other form of alternative dispute resolution, to come to an agreement on a way forward.

Unfair Prejudice Petitions

Where the parties are unable to reach settlement, it is open to a minority shareholder to petition to the Court for a claim under S.994 of the Companies Act 2006. In order to do so, the petitioning shareholder must show that:

  • the affairs of the company are being, or have been conducted in a manner that is unfairly prejudicial to the interests of the members generally; or
  • an actual or proposed act or omission of the company is or would be so prejudicial.

Examples of conduct which could constitute unfair prejudice are outlined above, in this regard the Court has a wide range of powers at its disposal to resolve the dispute. The most common order is for the Court to order that the shares of the petitioning member are purchased by the other members. Put simply, the Court will make an order that the shares are purchased at a ‘fair value’ had the conduct not taken place.

If you are a shareholder of a company and have concerns about the way in which the company is being run, please do not hesitate to contact Joshua for an initial discussion via email joshuas@fraserdawbarns.com or telephone 01553 666632.

 

Find out more about Joshua Shuardson-Hipkin

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This article aims to supply general information, but it is not intended to constitute advice. Every effort is made to ensure that the law referred to is correct at the date of publication and to avoid any statement which may mislead. However, no duty of care is assumed to any person and no liability is accepted for any omission or inaccuracy. Always seek advice specific to your own circumstances.  Fraser Dawbarns LLP are always happy to provide such advice.

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