Shareholders: How to protect your rights in decision making
As a shareholder of a company, have you ever felt that the majority are making decisions which are unfairly prejudicial to your interest in the company?
When shareholders hold different quantities of shares in a company, an imbalance of voting power can exist. In some instances, this can result in the majority conducting the company’s business or acting in a way which is prejudicial to your interest as a minority shareholder.
The Companies Act 2006 (the “Act”) provides mechanisms for a shareholder, in this situation, to protect their interest, by making a petition to the court for an order to grant relief from unfair prejudice.
Under sections 994-996 of the Act, a shareholder may apply to the court 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 shareholders generally or of some part of its shareholding (including at least himself), or
- an actual or proposed act or omission of the company (including an act or omission on its behalf) is or would be so prejudicial.
If the petition succeeds, the court has the freedom to grant an order for relief from the unfair prejudice; this could include but is not limited to:
- regulating a company’s conduct,
- requiring the company to act or refrain from acting in a specific way, so as to balance the matter complained of, or
- order the majority shareholders to purchase the shares of the minority for a fair value.
If, however, the majority shareholders can show any misconduct on the part of the minority shareholder, or provide evidence that a fair offer has been made by them to purchase the shares of the minority, then the unfair prejudice claim could be contested or struck out.
A recent case in the Court of Appeal was asked to determine whether the offers made by the majority shareholder and the rejection of them by the minority shareholder were reasonable. If you would like to read more about this case, please click here to read our blog.
There are further options available to shareholders who find themselves in a dispute and we would be happy to discuss these with you. If you are a minority shareholder feeling ignored by the majority, a majority shareholder facing a derivative or unfair prejudice claim or a shareholder who would like advice on a dispute generally, please do not hesitate to contact Simon Beasley in our dispute resolution team on 0207 288 4769 or email firstname.lastname@example.org.