Law case coursework
jhh19970724
minorityremedies.pptxCompany Law
Minority Shareholders’ Personal Remedies
Personal remedies
Statutory provisions for personal remedies for the way the minority shareholder has been treated
S994, CA 2006
S122(1)(g) Insolvency Act
Common law has been limited in giving rise to such policies for protecting minority shareholders
See personal rights under constitution
Challenging the validity of constitutional amendments
Derivative actions
Unfairly prejudicial conduct
Who can sue
Needs to be an existing member
Who is ‘conducting affairs of the company’
Directors
Controlling shareholders
Re Unisoft’s case where allegation made against unproved shadow director failed
Unfairly prejudicial conduct
Must petition be made only in relation to membership interest?
Recall ‘Hickman’ principle?
Re Alchemea but the position is more generous now with Gamlestaden and Wootliff cases
Unfairly prejudicial conduct
Must petitioner be blameless in asking for ‘justice’?
Recall derivative actions
Courts generally regard retaliatory actions or unwise conduct on the part of the petitioner as not obstacles to the petition
Eg retaliatory breaches of directors’ duties in Re London School of Electronics, Shepherd v Williamson,
Extreme case in Arrow Nominees
Unfairly prejudicial conduct
Petitioner usually wants to prevent respondents from using company’s money to defend action, and so injunction is concurrently asked of the court at the commencement of proceedings
Approved in Corbett v Corbett
But company may need separate and limited legal representation at some points in the proceedings
Unfairly prejudicial conduct
Court has wide discretion to look at unfairly prejudicial conduct but must be based on a form of ‘mutual legitimate expectations’ of how the minority shareholder should be treated and such expectations are not met
O’Neill v Phillips clarifies the elements of unfairly prejudicial conduct
O’Neill v Phillips
O sues for unfairly prejudicial treatment
O and P unequal shareholders, P was a junior who was given a stake in co
P promotes O in management and tells O that will hand over business to O if he retires
Economic conditions become challenging, P does not retire and demotes O
O’Neill v Phillips
Agreement between O and P is that IF P RETIRES, then O will manage the business. P did not retire and hence was entitled to organise management as he saw fit
O’s ‘expectation’ that he would remain at an executive level of management all the time was a one-sided expectation and was therefore not mutual or legitimate
O’Neill v Phillips definition of ‘unfairly prejudicial conduct’
Based on breach of companies’ constitution
Based on breach of other mutual understandings or agreements between parties, oral or written
If company is a quasi partnership, based on wide understanding of ‘injustice or inequity’
If company is a quasi-partnership
Main consequence is that court can consider a WIDE range of conduct as being unfairly prejudicial
Incentivises many petitioners to make the claim that company is a quasi-partnership
Quasi partnership indicators (Sprint Electric)
Relations at outset of business eg family, friends, partnership conversion
Degree of mutual interdependence and long-termism
Restrictions on transferability of shares ie personal elements are more important than commercial
What is a quasi-partnership
Existence of extensive shareholder agreements can negate quasi-partnership eg George v McCarthy and Goss, Brown v Bray
Two founding and equal shareholders over 20 years, but extensive agreement between them negated any sense of quasi partnership
Family company is not always quasi partnership eg Dinglis v Dinglis (father founded the company and drew sons in as minority shareholders but remained dominant. Sons’ alleged expectations of being able to succeed and overrule the patriarch one day were one-sided and not substantiated. Court did not regard the sons as in a partnership with father)
Quasi partnership can change in character eg Michel v Michel (co founded by family and co-owned and directed by brothers was succeeded by one of the brothers and a nephew who dealt with each other at arms length, no longer quasi-partnership)
If company not a quasi-partnership
Eg Brett v Migrant Solutions
Company to acquire a data processing centre with express buyout agreement
Commercial partner
Brett
Commercial partner
If company not a quasi partnership
Moxon v Lichfield
Company to manage investment funds with extensive shareholder agreements
Commercial partner
Moxon
Commercial partner
Quasi partnerships
Court willing to find a wider range of unfair conduct even if not represented in instruments of mutual agreement/understanding
Eg Even if controlling shareholder is legitimately exercising power to exclude or remove the minority from the Board, this can be unfair
Croly v Good
Birdi v Specsavers
Other examples of WIDE range of unfairly prejudicial conduct
Eg even if it is legal for directors to not declare dividends, the sustained non-payment of dividends can be unfair as there is unequal enjoyment of the company’s wealth between controlling and minority shareholders
Lucy McCallum-Toppin v McCallum-Toppins and AMT Coffee, also Sam Weller
AMT Coffee
Mother
Brother
Widow of brother
Brother
Further examples of WIDE range of unfairly prejudicial conduct
Eg even if it is legal for an equal shareholder to seize power and dominate Board (in many jvs, equality of shareholding is meant for mutual respect and control)
Boughtwood v Oak, (but see ITC v Ferrester)
Final egs of unfairly prejudicial conduct
Many quasi partnerships are able to found unfair prejudice petitions based on a wide range of objectionable conduct inc
Suspicions of breaches of directors’ duties by other shareholder/s, as minority shareholders are particularly ‘betrayed’ by breaches of directors’ duties and count as both a personal and corporate grievance
Eg Re a Company, Dalby v Bodily- dilution of shares and improper purpose, s171
Eg misuse of corporate assets, selling at undervalue, Maidment v Attwood, s175
Eg jeopardising company’s interest, Re Macro Ipswich, s172, 174
What is not unfairly prejudicial conduct
But note that complaining about the building up of stakes by another shareholder is not a legitimate claim unless there is some constitutional/agreement basis
McKillen v Misland
Remedies for the Petitioner
Although wide discretion to find unfair prejudice, court usually orders a buy-out for petitioner, and unfair prejudice finding is necessary so that the buyout order can be fair
Otherwise buyout offers are usually made at par value, or at a discount from market value (approx. 30% Re Planet Organic)
Without discount
Adjustable Date of order
Court valued
Remedies for the Petitioner
‘Without discount’ represents ‘value’ of the business the petitioner has contributed to building up for the long-term, and the ‘unfair prejudice’ is an unexpected truncation of the long-term venture
Apollo Cleaning, Croly v Good
Remedies for the Petitioner
Adjustable date of order is necessary as after the fallout with the petitioner, company’s fortunes may have nosedived under poor leadership of the other party/ties and does not represent the ‘investment value’ the petitioner has built up
Shepherd v Williams, OC Transport Services
Remedies for the Petitioner
Court valued ie court does not necessarily buy into the valuation presented by the respondents, which can be biased or unduly low
Eg Benfield Grieg group, Doughty-Hanson
Remedies for the Petitioner
In exceptional cases, court may grant under s996 other remedial orders
Corporate Governance intervention
Re Harmer, Re Whyte
Authorising derivative suits
Lowe v Fahey (directors’ inappropriate diversion of corporate funds)- does this still work today?
Just and Equitable winding up
S122(1)(g) main use is that it provided a remedy predating the unfair prejudice petition which was introduced in 1985
Re Westbourne Gallaries
Just and Equitable winding up
May be relevant in unique cases
Westbourne Gallaries
Company with 50-50 shareholding then split three ways
N
E- voluntary dilution
N’s son- subsequent introduction
Just and equitable winding up
‘Is it reasonable to pursue alternative remedy’ bar
Fuller v Cyracuse
Fulham Football Club v Richards
Badyal v Badyal (only if company is solvent and there is surplus returning to shareholders)
Just and equitable winding up
Harding & Walton v Edwards
Family company with mother and sisters as shareholders
If a sister minority sells out, what if she inherits shares later from other dead family members such as mother?
Company to be dissolved so that capital can be distributed to all, and those who wish to carry on business can then deploy their capital to those ends (clean break approach)
