Minority protection Flashcards
(28 cards)
When can shareholders sue for invasion of personal rights?
When a shareholder’s personal rights — such as the right to vote or to receive dividends — are breached.
What happened in Park v Daily News Ltd, and which Foss v Harbottle exception does it relate to?
Facts: Directors planned to distribute company assets to employees after selling the business.
Court Held: The directors had no power to give away company assets without shareholder approval; it was ultra vires.
Exception:
✔️ Directors acting ultra vires or breaching duties.
What was the key issue in Ebrahimi v Westbourne Galleries?
Ebrahimi (E) was dismissed from the board after the business was incorporated, and the profits were paid as directors’ salaries rather than dividends, leaving him with no return on his investment.
What were the exceptions created to the minority rule established in foss v harbottle case
Minority shareholders could bring action against the wrongdoers in situations of
Fraud or ultravirus
when Special majority required
When Personal rights to minority shareholder is affected/ Violated
Fraud on the minority and wrongdoers are in control
What was the court’s ruling in Scottish Co-operative Wholesale Society Ltd v Meyer
The court ruled that SCWS’s use of its majority voting power to divert the joint venture’s business to itself was unfairly prejudicial to Meyer’s interests as a shareholder, and the conduct was deemed unfair.
Under section 994 of the companies act - a minority can bring action for unfairly prejudicial conflict
what does section 994 of the companies say about unfair prejudicial
–A shareholder can petition the court where the company’s affairs are being or have been conducted in a way which is unfairly prejudicial to some or all of its members
Why did the court wind up the company in Ebrahimi v Westbourne Galleries?
The court found it just and equitable to wind up the company because, despite its incorporation, the business still functioned like a partnership based on mutual trust, and E’s exclusion from management and profits was unfair.
What was the key issue in Ebrahimi v Westbourne Galleries?
Ebrahimi (E) was dismissed from the board after the business was incorporated, and the profits were paid as directors’ salaries rather than dividends, leaving him with no return on his investment.
When is it equitable and just to wind up the company
When the company is unable to pay its debts (owes more than £750)
When the company has less than 2 members and its public
Under Section122 of the insolvency act 1986 what legal action can also take place
Under this act the courts allow or gives powers to wind (shut down) the company that is just and equitable to do so.
What is a representative action?
*Action brought by a shareholder on behalf of himself and
other shareholders to enforce their collective rights
In Nurcombe v Nurcombe, why was the wife not allowed to bring a derivative action?
She had already benefited financially (through divorce maintenance), so she was not considered a “proper person” to bring the claim.
Who bears the legal costs in a derivative action?
The shareholder bringing the case usually pays the costs. However, in some cases (like Wallersteiner v Moir -the company can be ordered to pay if the shareholder acted in good faith and had reasonable grounds.
What must a shareholder do before bringing a derivative action under CA 2006?
They must get permission (“leave”) from the court under Section 263(3) of the Companies Act 2006.
what is derivative action
When a shareholder takes action in his or her name or in the name of the other shareholder on behalf of the company
What is a personal action by a shareholder?
Action brought by the shareholder to protect their own rights.
e.g. fraud on minority, ultra virus etc
what are the 3 legal actions that minority shareholders can take where they feel that their rights or companys rights have been violated
Personal Action
Derivative Action
Representative action
What did the courts held in Cook v Deeks, and which Foss v Harbottle exception does it relate to?
Majority shareholders tried to divert a company contract for personal gain, excluding the minority shareholder — court held that directors breached their fusiciary duty by diverting a contract for their personal gain. Their action could not be ratified by a shareholder vote because they acted in bad faith to benefit personally
Exception:
Fraud on the minority (majority using power for their own benefit unfairly)
What did the courts hold in the case of Wood v Odessa Waterworks Company (1889), and which Foss v Harbottle exception does it relate to?
Company tried to pay dividends in bonds instead of cash without following shareholder approval rules — **courts held that members could sue as they have the personal right to enfore their right despite being a minority. **There was an infringement of personal rights as they had the rights to dividends in the proper form ( cash form not bonds)
What is meant by “fraud on the minority”?
When those in control commit fraud or wrongdoing against minority shareholders, preventing the company from taking action, minority shareholders can sue. The minority can take personal action
When can shareholders sue for invasion of personal rights?
When a shareholder’s personal rights — such as the right to vote or to receive dividends — are breached.
What happened in Park v Daily News Ltd, and which Foss v Harbottle exception does it relate to?
Facts: Directors planned to distribute company assets to employees after selling the business.
Court Held: The directors had no power to give away company assets without shareholder approval; it was ultra vires.
Exception:
✔️ Directors acting ultra vires or breaching duties.
When/why can shareholders sue for ultra vires or illegal acts?
Ultra Virus refers to actions taken by a company or its directors that are beyond their legal authority, as defined in the company’s constitution (like the Memorandum and Articles of Association). These actions are considered invalid and void, and cannot be ratified even by unanimous shareholder consent.
If the company’s act is beyond its powers (ultra vires) or illegal, shareholders can sue because the company itself cannot lawfully ratify the act. Minority shareholders can challenge such actions
What were the exceptions created to the minority rule established in foss v harbottle case
- in situations of fraud or ultra virus
- When Personal rights to minority shareholder is affected/ Violated
- Fraud on the minority and wrongdoers are in control
