Minority Shareholders Protection Flashcards
Mozley v Alston
regarding whether a action affects the company itself or the individual Shareholders -
Director of company voted out 4 directors to be replaced with another 4, never got replaced, 2 shareholders claimed that company was affected by director’s actions and filed bill against directors in their personal capacity. HELD; court refused claim as must be injury to company itself to which they are members and not injuring to them personally if it is only company affected.
wrongs done against a company as a separate entity
if those who commit wrongdoing are same people who can bring action against it then company cannot do anything and so minority shareholders may be permitted to bring action in these circumstances.
Where the courts won’t allow objecting member to claim wrongdoing (i.e. where not in best interests to allow every member to interrupt majority decisions of company)
Bramford v Bramford (internal management); directors allotted shares to company’s distributors, allotment challenged by members as an attempt to stop a takeover bid - HELD; not matter for courts to decide.
Macdougall v Gardiner; (irregularity) chairman decided to adjourn a general meeting, many SHs rejected decision and asked to vote on it, chairman refused, members challenged this and requested his action be deemed improper. Held; court should not interfere in internal matters; if it is a matter of irregularity can be subject to company’s ratification.
Majority shareholders protection 2 main remedies: 1) derivative claims
claims members can make when injured party is the company; for those who would not normally be able to make claims themselves.
Principle rule: Foss v Harbottle; directors misplaced and wasted property of company and improperly gave mortgages over company’s property, court declined 2 sh right to bring these proceedings against the directors; only affected company so company could claim BUT EXCEPTION IF:
i) if the act is ultra vires (beyond legal power) or illegal
ii) if the act could be validly done by a special majority or requires special procedure
iii) if a personal right is invaded by the company
iv) fraud on minority (only true exception)
FRAUD EXCEPTION:
3 main components:
1) fraud
2) minority
3 wrongdoer is in control
if fraud cannot be ratified it is a valid exception as in Cooks v Deeks
extending fraud meaning: Daniels v Daniels
Mr & Mrs D were 2 directors and majority Shareholders,, the negligently (not in bad faith) caused C to sell piece of land at fraction of its value to Mrs D. HELD: court refused to put up with directors who are so foolish that they make profits at the expense of their company. = where negligence leads to benefiting wrongdoer, court will consider a form of fraud.
meaning of minority (case)
Smith v Croft; must be a majority of the minority for a claim to be made effectively
meaning of in control ( case)
prudential assurance v newman industries; to have control you must be able to by any means of manipulation of their position in the company to ensure that the action is not brought by the company in question
Statutory derivative claim
S.260(3) states when a claim can be made - S.261(1) states permission of court needed.
Action can be brought against current or previous directors (shadow directors inc) and against 3rd parties - dishonest assistance and knowing receipt are important for determining 3rd party involvement.
compulsory and discretionary refusal of court on a statutory derivative claim
compulsory = outlined in S.263(2)(3) - focus on promoting success of company and if there is already a valid ratification of the cause of the claim.
discretionary = S.263(2)(a) importance of S.172 here. + member acting in good faith bringing claim.
where wrongdoing affects company and personal rights of members courts may decide in members favour (e.g. Pender v Lushington; no interferring with voting rights allowed = property right)
Majority shareholders protection 2 main remedies: 2) unfair prejudice
S.994 CA 2006 outlines what members must prove
and remedies for such actions under S.996
meaning of ‘company’s affairs’ under S.994? (case)
Scottish co-operative v Meryer; co-op society established a private company (majority sh) with 2 respondents (minority sh) to produce a type of cloth which required licensing and respondents provided required expertise for this license. few years later licensing ceased and co-op society transferred company’s business to one of its branches and cut off raw materials causing activities of company to stop and generate no profit - respondents petitioned a relief under unfair prejudice (similar clause to S.994 before its enactment) and court ordered co-op society to purchase their shares at a fair price - HoL agreed.
can a member bring a claim under S.994 if they are also a creditor?
Narrow approach: Je Cade & Son Ltd; P was a SH in business and landlord of land company held on an agricultural tenancy. P claimed company’s affairs were unfairly prejudice. HELD; claim refused because was using claim not in capacity as member but to secure right as landlord
Flexible approach: Gamblestaden Fastigheter v Baltic; held ‘interest’ in regard to members in S.994 may extend to cover a member who also happened to be a creditor in circumstances where distinction becomes artificial; may be a way to justify approval of claim here
most common remedy for unfair prejudice
BUY OUT ORDER - court orders fraction of shareholders to buy out petitioners.
Re london School of Economics; court has ultimate discretion in valuating the shares and clean/not clean hands of petitioners are taken into account when making the decision (can make claim with unclean hands) - court decides valuation based on fairness and justice.
