Shareholders Disputes

A director’s obligations and responsibilities derive from a fundamental and overarching requirement of a duty of loyalty to the company. As such if a director fails in complying with the responsibilities and obligations bestowed upon them, then the company can bring a claim against the director.  Consequently, if successful, the director can be forced to repay any loss suffered to the company, which ultimately could result in the director being dismissed.

It is generally the company that is entitled to bring a claim against a director but there are certain circumstances whereby a shareholder can bring a derivative action against a director on behalf of the company.  Ordinarily, this would arise where a wrong has been committed against the company, in respect of a cause of action arising from an act or proposed act or omission involving negligence, default, breach of duty or breach of trust by a director, shadow director or former director of a company.

Therefore, if you are a director or shareholder of a company where you have concerns regarding the actions or inactions of a director or past director, then we are here to help.  In short, we can help guide you in terms of the possible avenues available to the company and/or the shareholders, to resolve any potential director dispute.

Certainly it is the case, that there are many options available, when dealing with shareholders disputes.  Therefore, it very much depends upon the desired outcome and the ultimate end game.  However, generally the options available fall within two distinct avenues, either a negotiated settlement or litigation through the Court system.  Often a determining factor can be whether a shareholder’s agreement is in place. 

Most importantly shareholder’s agreements can include the method to be adopted when dealing with any dispute should one arise.  Therefore, it is often useful for shareholders of small private companies, to consider entering into a shareholder’s agreement from the outset.  Above all, in doing so, the shareholders can set out the basis upon which they agree to the company being run.  As such, if you don’t currently have a shareholders agreement, please get in touch our Virtual In-House Counsel services can help you obtain the requisite legal advice.

Most importantly, when dealing with shareholder disputes, devising the overall strategy is essential.  For example, this will often involve some form of negotiation, whether that is from the outset or in conjunction with litigation.  As regards negotiating a settlement, this can take various forms, but some examples could include the following:-

• an agreement whereby one party agrees to buy the others shares.  For example over a period of time or with some sort of payment proposal,
• the company buys back its own shares with distributable funds available to it prior to dividends being distributed to the shareholders,
• the company is effectively split up and each party takes a specific aspect of the business with the view to starting a new business and trading independently, otherwise known as a demerger.

Certainly, a negotiated settlement removes the risk of litigation and the possible uncertainties of proceeding through the Court process.  However, often it can be the case that negotiation alone is not viable or realistic and so litigation is necessary.  Although, with the view, if possible, to negotiate in conjunction with the litigation process.

Likewise, there are various claims a shareholder can bring, which can include the following: –

• The presentation of an unfair prejudice petition through the High Court pursuant to section 994 of the Companies Act 2006.  In short, an unfair prejudice petition entitles a minority shareholder to present a petition in circumstances whereby they have reason to believe that their interests in the company have been unfairly disadvantaged or prejudiced in favour of the majority. In addition, the Courts have a wide discretion to dispose of the claim.  However, more often than not, will result in the remaining shareholders purchasing the prejudiced shareholder’s shares.
• A just and equitable winding up order, resulting in the company being wound up, in circumstances where there is a complete deadlock between the parties or it is otherwise sensible to wind the company up as opposed to any other viable option available.
• A derivative claim, which can be brought by the shareholders of a company where there are concerns of wrongdoing.  For example, in circumstances whereby the company has insufficient authority to bring the claim itself.

Above all, if you have concerns in terms of the manner in which your interests in a company are being dealt with or you have concerns relating to an individual, then please get in touch.  Certainly, we can discuss with you, the steps that you wish to take and advise you of the options available to you.