A dispute between Shareholders is hugely disruptive to a business. It is, therefore, important to recognise when a dispute is occurring and take early advice on the rights and remedies available.
The first step is to review any Shareholders’ Agreement and the company’s Articles of Association. These documents may include rights that can be enforced by a Shareholder.
A Shareholders’ Agreement may also contain a Dispute Resolution clause which may set out how the parties have agreed to deal with the resolution of any dispute that may arise.
The next step is to consider any alternative and/or additional remedies that may be available:-
Unfair Prejudice Petition
A Shareholder may issue an Unfair Prejudice Petition pursuant to section 994 Companies Act if the conduct of the company’s affairs has prejudiced unfairly the Shareholder’s interests.
Examples of conduct that may be deemed to be unfairly prejudicial conduct are:-
- A failure to pay reasonable dividends;
- Misappropriation of company assets;
- Improper allotment of shares;
- A failure to provide information.
In cases where there is deemed to be what is known as a “quasi partnership”, there will be additional understandings and expectations between the parties which may be actionable if breached.
A derivative claim is a claim that can be brought by a Shareholder in the name of the company against the directors and/or third parties responsible for certain categories of alleged wrongdoing.
Once the derivative claim has been issued at court, the court’s permission must be sought before any further steps in those proceedings can be taken.
Just and Equitable Winding Up
Pursuant to section 122 (1) (g) Insolvency Act 1986, a company can be wound up by the court if “the court is of the opinion that it is just and equitable that the company should be wound up”.
The Shareholder applying for the order must have sufficient interest in any winding up and must usually have held the shares for at least 18 months.
Each case will be judged on its own facts but examples of cases where a just and equitable winding up order has been made are:
- Where there was deadlock within the company and no decisions could be made;
- A minority Shareholder has been wrongly excluded from management;
- Serious and consistent mismanagement;
- The original purpose for the company has been fully achieved or can no longer be pursued.
Alternative Dispute Resolution
Once the rights and remedies have been considered, it would be advisable to consider whether recourse to early Alternative Dispute Resolution methods, such as Mediation or Expert Determination could achieve an efficient and cost affective resolution to the dispute avoiding further management time, business disruption and uncertainly and legal costs.
The SAS Daniels LLP Dispute Resolution Team are experienced in bringing and defending Shareholders’ actions and in negotiating sensible resolutions to such disputes both before proceedings have been commenced and during the course of proceedings.
Job Title: Partner
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