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Practice Areas

Shareholder Disputes

EM Law are experts in advising on shareholder disputes. Our lead shareholder disputes lawyer is Joanna McKenzie who has extensive experience in advising clients on a wide range of dispute resolution matters.

Shareholder disputes can arise from a variety of situations. Both majority and minority shareholders can threaten or bring disruptive legal action, either personally or on behalf of the company.

The rights conferred upon shareholders can vary widely between companies. Shareholder rights can depend, for example, upon which class of shares they hold. The rights, duties, obligations and responsibilities of shareholders are contained within the articles of association. Every company must have articles of association. The articles form the basis of a statutory contract between the members, and between each member and the company.

In addition to the articles of association, the shareholders in a company often sign up to a shareholders agreement. A shareholders agreement also governs the relationship between the shareholders in a company and supplements the company’s articles of association. Ideally, the articles and the agreement will anticipate and provide for shareholder disputes.

Some of the most typical shareholders disputes that shareholders might bring include:

Claims for unfair prejudice

A member of a company may petition for relief against unfair prejudice under section 994 of the Companies Act. The Companies Act states that:

A member of a company may petition for unfair prejudice where:

– the affairs of the company are being conducted in a manner that is unfairly prejudicial to the member’s interests as a member; or

– an actual or proposed act or omission of the company is or would be so prejudicial.

Although what amounts to unfair in each case is subject to interpretation, unfair prejudice actions are generally based on a failure to fulfil the legitimate expectations of the aggrieved shareholder. A shareholder may, for example, expect the company to carry on a particular business or to have an equal say in how the company is managed and this may not happen.

• Petition for the winding up of the company

If a shareholder considers that a company is being mismanaged or a deadlock has arisen, a shareholder can present a petition under section 122(1)(g) of the Insolvency Act 1986. The court then has the power to wind a company up, if it is ‘just and equitable’ to do so. It should be noted, however, that even if a case for winding up is clearly established the court may refuse to grant the relief on the basis that there is an alternative remedy and it is unreasonable to the complainant not to pursue that remedy. As a shareholder, you should therefore look to other options first.

• Derivative claim

A statutory derivative claim may be brought by shareholders of a company under Part 11 of the Companies Act 2006. A statutory derivative claim is brought in the name of the company and therefore any proceeds of any claim will belong to the company rather than to the individual shareholder. There is no minimum number of shares that must be held to bring a derivative action but the court will look at the size of the shareholding in deciding whether or not to exercise its discretion to permit a derivative claim to be maintained.

Resolving shareholder disputes

Quite often, even if a shareholder brings a claim, the matter can be resolved before it gets to the courts. Informal routes to resolving problems should always be explored first. These routes include calling an informal meeting, calling a general meeting or going through a negotiation or mediation process. Ideally, a solution can be reached which enables the aggrieved shareholder to stay with the company. In the event of such disputes, formal legal advice should be sought at the earliest opportunity.

For any questions you may have concerning shareholder disputes contact Joanna McKenzie.

EM Law Joanna McKenzie

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