Minority Shareholder Protection - Case law Flashcards
(22 cards)
Barrett v Duckett [1995]
A minority shareholding may be as much as 50% (to exercise a minimum level of control 50%+ is needed)
Two owners, equal shares, one applied to court as a minority shareholder to remedy
Carlen v Drury (1812) per Lord Eldon:
Courts’ non-intervention policy
The court is not required on every Occasion to take management of every playhouse and brewhouse in the Kingdom.
Edwards v Halliwell [1950]
Two part rule in Foss v. Harbottle (1843) explained by Jenkins LJ
Firstly, the proper plaintiff in respect of a wrong alleged to be done to a company is prima facie the company itself.
Secondly, if a mere majority of the members of the company or association is in favour of what has been done, then cadit quaestio.
MacDougall v Gardiner (1875)
Mellish LJ:
…if the thing complained of is a thing which in substance the majority of the company are entitled to do … there can be no use in having litigation about it,
Exceptions to Foss
Rights recognised as personal in case-law include rights:
- to have vote counted ie included (Pender v Lushington (1877)
- to have dividend paid in cash if specified in Articles(Wood v Odessa Waterworks (1889)
- to have a particular procedure followed (Edwards v Halliwell)
Exceptions to Foss
Act is Illegal, Therefore ultra vires
Smith v Croft (No 2) [1988]
Held An individual shareholder could bring a personal action to restrain the company from so acting because it infringed his personal right to have the business conducted in accordance with the Constitution.
Exceptions to Foss
Special Majority required and not achieved or non-compliance with a special procedure
Quin and Axtens Limited v Salomon [1909]
Facts Consent of both managing directors needed for some transactions. One director refused to give consent for transaction; shareholders tried to authorise transaction.
Held Not possible to do this. Shareholder granted an injunction prohibiting the majority’s action.
Derivative Claims
Iesini v Westrip Holdings Ltd [2009]
some principles from the old law, such as judicial discretion and considerations of good faith and corporate benefit, remain relevant when courts assess whether to permit a claim to proceed.
Demonstration of the New Provisions
The court applied s.261–263 of the Companies Act 2006, which sets out the test for allowing a derivative claim.
Lord Justice Lewison:
(3) In considering whether to give permission (or leave) the court must take into account, in particular-
(a) whether the member is acting in good faith in seeking to continue the claim;
(b) the importance that a person acting in accordance with section 172 (duty to promote the success of the company) would attach to continuing it;
Derivative Claims
Costs
the court has the power to make a pre-emptive order requiring the company to indemnify the claimant’s costs
Derivative Claim
Bhullar v Bhullar [2015]
an example of a case in which the court concluded that a derivative action was the more appropriate way forward than an unfair prejudice petition (which on the facts of that case was likely to be slow and expensive).
Derivative Claim
Example of a claim not proceeding + Reasoning
Zavahir & anor v Shankleman & ors [2016]
John Baldwin QC
‘Given the inherent risks of litigation and the availability of an alternative remedy, I do not think a prudent director would attach great importance to continuing the litigation’
Ebrahimi v Westbourne Galleries [1973]
E alleged (under the equivalent of Part 30), that the affairs of the company had been conducted in a manner unfairly prejudicial to him and petitioned for an order that N and G buy his shares and in the alternative, petitioned to wind up the company under the equivalent of s122(1)(g) IA
Held: Failed on first ground but petition to wind up the company was granted. N and G had acted within their legal rights. But s122(1)(g) was an equitable jurisdiction (because of the words ‘just and equitable’), which could override legal rights
Alternative Actions to Winding up - Part 30 Action
Can you apply for both?
Existence of a possibility of a Part 30 action does not exclude a winding up on the just and equitable ground: Re a Company (No 001363 of 1988)
NB unlikely a winding up petition will be granted where a Part 30 action is available see, Re a Company (No 004415 of 1966) [1977] where a petition was struck out because likely that a Part 30 action would provide a better remedy and would permit company to carry on its existence
Will a s122 be granted if there was a reasonable offer to buy out the shares?
If there was a reasonable offer by other members to buy petitioner’s shares, he cannot use s122 see Re a Company (No 002567 of 1982) [1983] where after P was first excluded from the affairs of the company he offered to sell his shares to the other members but he later refused a reasonable offer by the other members to buy his shares.
but See Virdi v Abbey Leisure Ltd [1990] where the petitioner under s122 might not have obtained the proper price for the shares under the procedure in the constitution as his shares might have been given a discounted valuation.
Ebrahimi v Westbourne Galleries [1973]
Lord Wilberforce
N and G not entitled in justice and equity to make use of their legal powers of removing E as a director
Part 30 Action
Re Legal Costs Negotiators Ltd (1999) 2 BCLC 171, CA
‘Conduct of the company’s affairs’
Facts Four individuals set up a company, each was a director and employee and each had an equal amount of shares. The relationship with one person broke down and he was dismissed as an employee and resigned as a director before he was removed. He remained a shareholder though refusing to sell his shares to the other three. The majority petitioned under the equivalent provisions under the previous companies legislation, claiming that his continued membership was unfairly prejudicial to them
Held: the retention of the shares was not conduct of the company’s affairs or an act or omission of the company so that the section did not apply
Part 30 Action
‘Unfairly prejudicial’
In Re Saul D Harrison and Sons plc [1995] 1 BCLC 14, Neill LJ said
The words ‘unfairly prejudicial’ are general words and they should be applied flexibly to meet the circumstances of the particular case.
Part 30 Action
on the scope of ‘just and equitable’
Lord Hoffmann in O’Neill v Phillips
The concept of fairness must be applied judicially and the content which it is given by the courts must be based upon rational principles.
Part 30 Action
Unfairness
Hale v Waldock [2007] 1 BCLC 520 Mann J
unfairness can come out of a situation where the game has moved on so as to involve a situation not covered by the previous arrangements and understanding.
Part 30 Action
VB Football Assets v Blackpool Football Club (2017)
What did VB need to show
To bring a successful petition for unfair prejudice under section 994 of the Companies Act 2006 (CA 2006), VB
Football Assets had to show:
“ i) That it has standing to petition i.e. it is a member of Blackpool FC.
ii) That the acts or omission of which it complains consist of the management of the affairs of Blackpool
FC.
iii) That the conduct of those affairs has caused prejudice to its interests as a member of Blackpool FC.
iv) That the prejudice is unfair”.
Part 30 Action
VB Football Assets v Blackpool Football Club (2017)
What was held by Marcus Smith J + the relief
Disguised dividends: Excessive payments to Owen Oyston/Segesta were found to be unjustifiable “disguised dividends,” unfairly diverting value away from VB.
Management exclusion: VB had a legitimate expectation of equal say; its deliberate sidelining from key decisions was held to be unfairly prejudicial.
Dividend-mechanics claim dismissed: The allegation about pro-rata share-capital reduction/dividend mechanics was not proven unfair, so it was rejected.
Relief:
Marcus Smith J determined that a buyout order for £31.27 million was ultimately the only appropriate form of
relief and one that created a “clean break”
Part 30 Action
What if the petitioner’s hands are not clean
Clean hands’ rule of equity does not apply: petitioner’s conduct will not in itself be a reason for rejecting the petition. But, it may show that the petitioner is not unfairly prejudiced, or it may affect the remedy given by the court see Re London School of Electronics [1986] Ch 211
