Shareholder's Remedies and Minority Protection Flashcards

Question

Civil Remedies?

Answer 1

Ss 381 and 383 FSMA 2000 - s 381 - interdict or rectification. - s 383 – “restitution order”.

Answer 2

- “reasonable belief” not “market abuse”, or - “took all reasonable precautions and exercised all due diligence” - S123(2) FSMA 2000 for FSA action; and 383(3) FSMA 2000 for restitution order.

Answer 3

This section looks at the position of the shareholder to obtain redress where they have suffered a loss, usually because of the management's conduct. It considers: ⁃ (i) Derivative (shareholder) Action (on behalf of company) – ss 265-268 CA 2006 (called a 'derivative proceeding'). ⁃ (ii) 'Just and Equitable Winding Up - s 122(1)(g) IA 86. ⁃ (iii) 'Unfairly prejudicial conduct' - s 459 CA 85. ⁃ (iv) 'Reflective loss' - where a shareholder suffers a loss, from the same conduct as a company does, and sues the wrongdoer to recover that. The first three matters above are situations concerning 'minority protection', which are concerned with dissatisfaction at the way a company is being run. The fourth situation does not depend on minority status, but has a connection with the common law on derivative actions.

Answer 4

(i) Rights of pre-emption in the articles of association. | (ii) Problems of selling to outsiders.

Answer 5

⁃ One of the main options for an unsatisfied shareholder is to simply sell their shares. ⁃ However there can be complications surrounding the sale of shares. ⁃ It can sometimes be difficult to sell shares due to rights of pre-emption (which are common in small private companies). A right of pre-emption is where shareholders must offer to sell their shares to the existing shareholders first, who may then buy the shares or refuse to buy them. If they do refuse then the shareholder who wishes to sell may sell to an outsider. It can also be difficult to sell shares to an outsider (mainly in relation to small private companies (in relation to public companies it is easy to sell your shares on the open market if you are not happy)) because a minority shareholding gives very little power.

Answer 6

⁃ Three options are available to a minority shareholder who is unhappy with a company's management (in the absence of selling, or being able to sell, their shares): ⁃ A so-called 'derivative proceeding' (statute) ss 265-268 CA 2006. (The English equivalent is a 'derivative claim': see ss 260-264 CA 2006). ⁃ wind company up as 'just and equitable' (statute) – s 123(1)(g) IA 86. ⁃ 'unfair prejudice' petition[ This is the most popular in practice.] (statute) – ss 994 CA 2006 (and s 996 CA 2006). ⁃ NB there also exists 'reflective loss' - arises when a company suffers loss and a shareholder suffers loss from the same circumstances. This loss is recoverable by the shareholder where the loss is not merely a reflection of the loss suffered by the company - the shareholders loss must be a separate and distinct nature.

Answer 7

At common law Foss v Harbottle (1843), says that only the company can sue where the company has been the victim of wrongful conduct a wrong is done to the company. Problem if wrong done by directors and they decide not to bring proceedings. In England, exceptions arose if there was a “fraud on the minority”: see Edwards v Halliwell [1950] 2 All ER 1064, pp 1066-1069 (CA); and Prudential Assurance Co Ltd v Newman Industries Ltd (No 2) Ch 204, pp 210-211 (CA). It involves the shareholder bringing an action, in their name, for the benefit of the company. (“Fraud” here does not mean the delict of deceit, but rather equitable fraud (in the English law sense of unconscionable conduct, eg, undue influence.) This was called a “derivative action”, at common law. In Scotland, it is now in statutory form under the CA 2006, and is called a “derivative proceeding” (ss 265-269 CA 2006); it is also now under statute in England (“derivative claim”, under ss 260-264 CA 2006). Then exceptions arose which gave rise first to the "just and equitable winding up" action, then to the "unfair prejudice" action, and finally to the "derivative proceedings". This section concerns the first two. These two remedies are: parallel provisions (they have similar principles that underpin both of them since, if something is unjust and inequitable it would also seem to be unfair).

Answer 8

The derivative action’s status in Scots law was once not wholly certain. The Scottish Law Commission, in the Law Commission report on Shareholder Remedies (1997) No 246, para 6.22 and Appendix D, said no such action existed. The SLC did acknowledge that a shareholder may “seek a remedy for the company”, but say that this is a matter of “substantive law” rather than procedure. However, two fairly recent decisions made it clear that, under the general law, it was available in Scots law: (i) Anderson v Hogg [2002] SC 190, 2002 SLT 354 (IH); and (ii) Wilson v Inverness Retail and Business Park Ltd 2003 SLT 301 (OH).

Answer 9

Scots Law – Now Ss 265-269 Companies Act 2006 – Derivative Proceedings The Companies Act 2006 has introduced a statutory based derivative action for Scotland: ss 265-269 CA 2006, called “derivative proceedings”. There is also a separate statutory derivative action for England and Wales, or Northern Ireland (called a “derivative claim”), which is in similar terms: see ss 260-264 CA 2006. Common law derivative actions can no longer be brought – any such proceedings must now be brought under ss 265-269 CA 2006: see s 265(2) CA 2006.

Answer 10

Section 265 CA 2006 permits a shareholder to bring “proceedings” in relation to “any actual or proposes act or omission involving negligence, default, breach of duty or breach of trust by a director of the company”, for the protection of the company’s “interests”, and to “obtain a remedy on … behalf” of the company: see ss 265(1)-(3) CA 2006.

Answer 11

The shareholder can sue “the director” and/or “another person”: s 265(4) CA 2006.

Answer 12

Proceedings can relate to conduct either before or after the shareholder became a shareholder: s 265(5) CA 2006. The new procedure does not stop a shareholder bringing “proceedings”, regarding the above conduct; in order “to protect [their] own interests and obtain a remedy on [their] own behalf”: s 265(6)(a) CA 2006 (ie, other personal minority protection remedies). Also, it does not prevent a court making an order, pursuant to s 996(2)(c) CA 2006 (“unfit prejudice order”), re authorising a person to bring “civil proceedings”, in the company’s name, and on the company’s behalf: s 265(6)(b) CA 2006.

Answer 13

The court’s leave is needed to commence proceedings: s 266(1) CA 2006. Two stage approach to granting leave (s 266 CA 2006): (i) “ex parte” – applicant only (s 266(3) CA 2006); and (ii) “inter partes” – both parties, if not rejected in stage (i) (ss 266(4), (5) CA 2006).

Answer 14

Leave will be refused where: (a) “a person acting” so as “promote” the company’s “success” (under “s 172 CA 2006”) “would not … raise or continue the proceedings”, ie, not going to contribute to company’s “success”; or (b) the conduct has not, at present, happened, or the company has “authorised” it; or (c) the conduct “has … occurred”, but there has been authorisation or ratification by the company. (S 268(1) CA 2006) Factors to take into account in relation to leave are: (a) the shareholder’s good faith re the proceedings; (b) how important someone “acting to promote” the company’s “success” would regard the proceedings; (c) re future conduct - whether the company is “likely” to authorise or ratify it; (d) re past conduct – could there be ratification by the company and was this “likely”; (e) has the company made a decision “not to raise” or continue proceedings (f) could the shareholders pursue “the cause of action [ie, the claim] … in his own right rather than on” the company’s “behalf” (ie, an “unfair prejudice” petition under s 994 CA 2006); (S 268(2) CA 2006) In relation to s 268(2)(b) CA 2006 (ie, promoting “the company’s success”), reference is made to the “hypothetical director”: see Wishart v Castlecroft Securities Ltd [2009] CSIH 65; 2010 SC 16, para [37]. In deciding the application, the views of independent shareholders, before the court, are to be considered: s 268(3) CA 2006.

Answer 15

An applicant can seek an indemnity from the company for his/her expenses in bringing the derivative proceedings. The company is the beneficiary of a successful derivative proceeding.

Answer 16

There are two scenarios: (i) Shareholder taking over from Co A shareholder can apply to take over a potential derivative action raised by the company, where: (a) the company’s conduct re the proceedings constitutes “an abuse of process”; or (b) the company has been dilatory in prosecuting the proceedings; or (c) “it is appropriate” for that shareholder to take-over the proceedings. (Ss 267(1), (2) CA 2006). The court has a wide jurisdiction as to what to do in this regard: s 267(5) CA 2006. (ii) Shareholder taking over from another Shareholder The position here is basically the same, where a shareholder wants to take over proceedings from another shareholder. They apply to the court to take over the proceeding on the basis of: (a) “an abuse of process” re the proceedings; (b) dilatory prosecution of proceedings; or (c) “it is appropriate” for the applicant shareholder to take over the proceedings from the first member. (Ss 269(1), (2) CA 2006). Again, the court has wide powers regarding the application and the proceedings: s 269(5) CA 2006. The same considerations, under s 268 CA 2006, apply to granting leave for an action to be taken over as apply to a shareholder bringing an action: see ss 268(1), (2) CA 2006.

Answer 17

As indicated above, there is also minority protection under the insolvency and companies legislation: (i) “Just and Equitable” Winding Up – s 122(1)(g) IA 86; and (ii) “Unfair Prejudice” – s 994 CA 2006. These often relate to quasi-partnerships (ie, small companies, often former partnerships, which are run along partnership lines, eg, every director is involved in decision making).

Answer 18

Just and equitable winding up s 122(1)(g) IA 8 ⁃ Under s 122 of the Insolvency Act 1986, a company can be wound up if it is just and equitable to do so. This is a discretionary remedy.

Answer 19

⁃ The company, its directors, creditors or contributories can all present a winding up petition (s 124). Shareholders are missing from this list. ⁃ A 'contributory' is a 'person liable to contribute to the assets of a company in the event of its being wound up' (s 79(1)) - so this would include a shareholder who doesn't have fully paid up shares. ⁃ As to fully paid up shareholders, it was held in the case of Re Rica Gold Washing Co [1879] that they can only bring a petition if there is likely to be 'a surplus' 'after full payment of all the debts and liabilities of the company' (so they are seeking to wind the company up to protect their surplus) See too Farrar’s Company Law (1997) 4th edn, at pp 441-442; and CVC/Opportunity Equity Partners Ltd v Demarco Almeida [2002] 2 BCLC 108, para 13

Answer 20

⁃ This is the leading case. Lord Wilberforce noted that legal rights are subject to 'equitable considerations' (fairness). ⁃ Involved a quasi-partnership. Started off as a partnership and E was one of the two partners. The other partner was N. When the partnership became a company E and N were the two founding director-shareholders. Shortly afterwards N's son GN was admitted as the third director-shareholder with both E and N transferring shares to GN. The result was N had 400 shares, GN 200 and E 400 shares. The result was that N and GN could outvote E. Around 10 years later there was a disagreement. N and his son voted to get rid of E as a director (but there was an understanding that he would still be involved in management of the company). ⁃ It was held that an action based upon 'oppressive conduct' failed, however the courts held that it was just and equitable to wind the company up because there was an understanding of management participation between E and N when the company was formed. ⁃ In the course of his speech, Lord Wilberforce outlined several important points - the key ones relating to 'equitable considerations'. He said that for equitable considerations to apply there must be something more than just a commercial association where the articles set out the position comprehensively to justify a just and equitable winding up. To show that there is 'something more', at least one of the following three factors must be present: ⁃ 1) An association based on the persons 'personal relationship involving mutual confidence' ⁃ 2) An understanding that the membership or at least part of it would be involved in managing the company's business. ⁃ 3) That there is a fetter on the transfer of shares (i.e. A right of pre-emption in the articles of the company, with the consequence that a loss of confidence or a shareholders removal as a director means that shareholder is not able to remove his or her capital from the company. See Lord Wilberforce in Ebrahimi [1973] AC 190, pp 379-380. lessening of “strict legal rights” due to “equitable considerations”. more than just not being re-elected or dismissed as a director. goes beyond articles. “something more”: requires at least one of the factors below: - “personal relationship, involving mutual confidence”. - “management participation” by “members”. - fetter on transfer of capital, i.e., “no escape mechanism”. Petitioner's conduct: Such a winding up is “discretionary”. Thus, the petitioner’s conduct can be relevant. See Lord Cross of Chelsea in Ebrahimi v Westbourne Galleries Ltd [1973] AC 360, at p 387. ⁃ If the petitioner has acted very well but has been badly aggrieved then the court is more likely to entertain their claim. Conversely if the petitioner's conduct has been bad then the court is less likely to entertain their claim. ⁃ In Ebrahimi v Westbourne Galleries Ltd [1973] Lord Cross noted that under English law, if a party sought to benefit from such equitable considerations that party had to come to the court with 'clean hands'. So if the petitioners misconduct had been a cause of the confidence between the parties breaking down then the petitioner cannot insist on winding up if the other parties do not wish winding up to occur. ⁃ Although 'clean hands' is a doctrine of English equity and doesn't have a direct equivalent in Scots law, it still applies in Scotland (the closest Scottish equivalent is the rule that you cannot benefit from your own wrongdoing).

Answer 21

⁃ Held that it was permissible for a petitioner to seek to wind a company up on the just and equitable ground where the majority had not made an offer at a fair price for the minority shares (the shares were not valued pro rata without a discount) [nb while this case shows that a winding up for a lack of a fair offer is possible it would be very unlikely in the UK - this is a Cayman Islands case at the privy council]

Answer 22

Under s 994 of the Companies Act 2006 one can petition for an 'unfair prejudice' order. This is the most important provision that a minority shareholder will rely on in practice. ⁃ Section 994 states that where a shareholder has either individually or with other shareholders been unfairly prejudiced by the way the company's affairs have been conducted, that shareholder or those shareholders may petition the court for an order pursuant to s 996. The behaviour can relate to past, present or prospective conduct (but in relation to prospective conduct it has to be planned conduct). A less severe alternative to winding up a company is found in s 994 CA 2006 – “unfair prejudice” suffered by a member. [Formerly, s 459 CA 85].

Answer 23

1. Time and cost. ⁃ One of the problems with the unfair prejudice petition prior to **O'Neill v Philipps [1999] was that these petitions were long and costly. Since you are dealing with individuals and money, people get upset and emotional and don't always think rationally and they may be inclined to continue with legal actions when settlement may have been a far better option. O”Neill adopted a more restrictive approach to the section. Gave “guidance” on share “buy-outs” - the main problem issue/question is one of valuation - should minority stakes be “discounted”?

Answer 24

This is the leading case and must be read - it tried to rectify the large amounts of money and time spent on such petitions.] [The leading case on “unfair prejudice” (Must be read!) See the case note on the O’Neill case by J Payne and D Prentice, (1999) 115 LQR 587. (All references in this handout are to WLR.)

Answer 25

Remedies – s 996 CA 2006 [formerly, s 461 CA 85] ⁃ The court has a range of remedies (s 996). In the first instance it may make "such order as it thinks fit". Without limiting its general discretion, parliament has set out 5 things which the court is likely to do[ So the court has a very wide discretion in order to do justice / rectify the wrong but most orders will fall within one of the 5 things.]: ⁃ 1) Regulation of the company's future affairs[ Courts will be very reluctant to use this remedy.] ⁃ 2) Stop company doing something, or require it to do something ⁃ 3) Permit 'civil proceedings' in a company's name and on its behalf ⁃ 4) Order the majority to 'buy out the minority's shares (or occasionally vice versa)[ This is the most common remedy.] ⁃ 5) Change the memorandum and articles

Answer 26

court can award relief not asked for, although, normally, a “catch all claim” seeking “‘such other order as may be as the court thinks fit””

Answer 27

where there is an order, under s 996(2)(d) CA 2006, concerning the company’s Articles of Association, this order has to be delivered to the companies registrar within 14 days (ss 998(1), (2) CA 2006). Failure to do so results in the company and any defaulting officer committing “an offence”: s 998(3) CA 2006. There is a “fine” for “a person guilty of an offence” thereunder: s 998(4) CA 2006.

Answer 28

⁃ There are 6 key issues which arise in relation to s 994 (most of which were set out in O'Neill) (1) “Unfair Prejudice” - “Capacity” Bringing Petition In. (2) What is “Unfair Prejudice”. (3) “Legitimate Expectations”. (4) Need to Establish “Unfair” Behaviour. (5) Petitioner’s Behaviour (6) Offer to “Buy-Out” Minority’s share.

Answer 29

⁃ The unfair prejudice should affect the petitioner in his/her capacity as a member of the company (so if a shareholder is also be a director, it must be suffered as a member, not as a director). But see Gamlestaden - a wide scope is given to this so the fact that Gamlestaden would have benefited as a creditor but not as a member was enough for them to have capacity.

Answer 30

“Member” in his/her “capacity” “as a member”. O'Neill owned 100 shares in a company known as Pectel that removed asbestos. O'Neill was employed by Pectel. O'Neill had made a good impression on Philips who was the main shareholder and consequently was given 25 shares in Pectel. He was also made a director. ⁃ Just under a year later O'Neill took over the daily operations of Pectel with Philips stepping down as a director. O'Neill effectively became Pectel's managing director. As a result O'Neill was allowed 50% of Pectel's profits (part of which was a mix of shares and dividends and part of which was reinvested in the company.) ⁃ Over the next 5 years O'Neill put money in Pectel's share capital - this money was first represented by bonus shares and subsequently by shares carrying no voting rights. Pectel's share capital decreased to £100k and O'Neill gave a guarantee which he secured over his home. There had been discussions in the last two years concerning O'Neill becoming a 50% shareholder (he only had 25% stake although he was receiving 50% profits and 50% dividends). Professional advisers were called in and proposed agreements - but no contract was signed. ⁃ The business collapsed. Philips became worried and wasn't happy with O'Neill. O'Neill went to manage the German arm of the business. There was a final disagreement and Philips stated that O'Neill was no longer entitled to 50% of the profits as he was no longer the managing director and nor would O'Neill be paid 50% of the dividends - he would only receive 25%. ⁃ O'Neill brought an unfair prejudice petition. ⁃ This petition was dismissed by the trial judge. ⁃ The court of appeal overturned this decision who were then reversed by the HL

Answer 31

⁃ G was a company that owned shares and was a loan creditor of Baltic Partners. BP was insolvent. The remedy sought by G was that BP's directors pay damages for breaches of the duty they owed as directors. It was noted that the damages remedy wouldn't restore the company to a solvent state, it would confer no benefit for G in their capacity as a member. But it would give them a large sum of money in their capacity as a creditor. ⁃ The Privy Council held that one gives a wide scope to s 994. Taking such a wide scope to s 994 they held that G's petition should not be refused simply because it would benefit the investor only as loan creditor and not as member.

Answer 32

- “Affairs of the company” – “to be liberally determined”

Answer 33

⁃ The test set out in O'Neill is one of fairness. ⁃ In looking at what is fair, the importance of context and background need to be considered. Two points arise from this: ⁃ 1) a corporation is normally an association of persons for an economic purpose which normally involves legal advice and formal procedures. As a result a member cannot normally complain about the running of a company except when the articles or some shareholders agreement have been breached. ⁃ 2) however, there is also a place for equitable considerations. So in certain circumstances it can be unfair for strict legal powers to be relied on by directors [the most obvious case is one of management exclusion (where you are locked into the company)]. “Commercial Fairness” *Re Saul Harrison & Sons plc [1995] 1 BCLC 14, especially pp 17-20 - reference to “legitimate expectations” substantially qualified in O’Neill v Phillips (above). **O’Neill v Phillips (above) - “broad brush” approach - [1999] 1 WLR 1092, at pp 1099-1102 - “fairness” (HL(E)).

Answer 34

It was held that s 994 has two roles: ⁃ 1) protecting members from rule breaches ⁃ 2) unfair reliance on strict legal powers by management (e.g. a management exclusion case) ⁃ These concepts of fairness and equitable considerations are easily adaptable to Scots law, as in the case of *Anderson v Hogg 2002.

Answer 35

where Arden LJ says there are two components of “unfairly prejudicial”: “‘unfairness’ and ‘prejudice’” must be considered in a “company law” “context”. Hence, whilst there is flexibility regarding “fairness”, it is not an “unbounded” concept, without “principle” – there is not a blanket discretion.

Answer 36

(i) “Management Exclusion” **O’Neill v Phillips [1999] 1 WLR 1092, pp 1106-1109 – real “unfairness” being excluded from directorial “function” “without a reasonable offer” (ie, “fair value”) – need an “escape hatch”. ⁃ 1) The most obvious example is management exclusion. This is normally the situation where you are effectively locked into a company and can't get out. Lord Hoffman in O'Neill observed that as most members of private companies are directors, removing a member as a director constituted unfairly prejudicial behaviour. However he went on to say that the real unfairness was being excluded from your directorial functions without 'reasonable offer' (for fair value for your shares). ii) Delay in Holding Meeting McGuinness v Bremner plc 1988 SLT 891. ⁃ 2) Situation where there is a delay in holding a meeting because it is not in a parties interest. ⁃ 3) Non payment of dividends (which, if tied in with being management exclusion and being locked in the company means that they can't get capital out and also aren't receiving any income). Re Sam Weller & Sons Ltd [1990] Ch 682, p 693. Grace v Biagoli [2005] EWCA Civ 122; [2006] 2 BCLC 70. Sikorski v Sikorski [2012] EWHC 1613 (Ch). iii) Excessive remuneration - where directors pay themselves vast amounts of money to the prejudice of shareholders. Re Cumana Ltd [1986] BCLC 430 Re Annacott Holdings Ltd/Re Tobian Properties Ltd [2012] EWCA Civ 998. ⁃ 5) Rights issue[ Where the company wants to raise money from existing shareholders - usually at a price above the par value but below the market price.] that the minority unable to afford - this dilutes the stake of the minorities shares (e.g. used to get minority stake down to below 25% in order to pass a special resolution) Re Cumana Ltd [1986] BCLC 430. iv) Stacking Board with Directors Opposed to Company Re Whyte Petitioner 1984 SLT 330. v) Issuing new shares below their real value ⁃ Pettie v Thomson Pettie Tube Products 2001 ⁃ *Look up*

Answer 37

However, conduct may be illegal (eg, breach of articles), but not “unfairly prejudicial”

Answer 38

⁃ This test became very popular for those trying to claim they had been unfairly prejudiced. ⁃ However, in O'Neill Lord Hoffman indicated that it was not appropriate to use legitimate expectations since it is an effect and not a cause (so instead of saying 'I had legitimate expectations which were not given effect to, therefore I have suffered unfair prejudice', the test should be saying 'I have suffered unfair prejudice and as a result of this, my legitimate expectations have not been met' - this was an attempt by the court to reduce the scope of legitimate expectations in this context. Therefore, legitimate expectations is no longer a ground for unfair prejudice. ⁃ [Remember: the effect of O'Neill was an attempt to reduce the scope of unfair prejudice petitions in general].

Answer 39

Unfair behaviour must be established. ⁃ In O'Neill Lord Hoffman noted that in these kinds of cases it is not a matter of it being a no-fault divorce - you must show that there was unfair behaviour. So just because parties do not agree or the relationship has collapsed does not mean that one party can simply 'walk away' and expect to be bought out. AND Phoenix Office Supplies Ltd v Larvin [2003] 1 BCLC 76, para 33. therwise, in a quasi-partnership type company, could be “ruinous”: see Phoenix Office Supplies Ltd v Larvin [2003] 1 BCLC 76, para 30.

Answer 40

⁃ The petitioner's behaviour may be a factor - this is discretionary. “Discretionary” - thus, petitioner’s behaviour may be a factor. ⁃ NB this is not analogous to the petitioner's behaviour when winding up under the just and equitable ground. ⁃ It has been indicated recently that while the petitioner's behaviour could be pertinent in view of the wide discretion under s 996, it is not an overriding requirement that the petitioner must come to court with clear hands. [So it is less stringent than the position in relation to a winding up under the just and equitable ground (s 122 IA 1986). But it is still a factor in determining whether the court will grant the petition and if so what remedy will be granted.

Answer 41

⁃ This is the most common form of relief sought under s 996. ⁃ This must be at a 'fair value'. ⁃ What is meant by fair value? ⁃ In an attempt to get around the problems in regard, Lord Hoffman in O'Neill stated that in general it must be done on a proportionate / pro rata basis (there is to be no discount unless there are special circumstances.) ⁃ If there is no consent as to how to value the shares, valuation will be by a competent expert acting as an expert. ⁃ The parties must have equal access to company information (such information may be useful or damaging and may heavily influence the value of the shares). ⁃ The company auditor will normally value shares - but there is a potential conflict of interests especially in small companies. ⁃ The party making the offer to buy shares must have resources to satisfy the offer.

Answer 42

⁃ Party made an offer to buy shares but had no way of fulfilling it. ⁃ If the matter goes to court, what date are the shares valued on? ⁃ 1) Petition date or ⁃ 2) Date of the order by the court to purchase the minority's shares. ⁃ Normally the shares are valued on the date of the order to purchase the minority's shares, unless there are circumstances which dictate otherwise as a matter of fairness (e.g. If the company has been deprived of business or it has undergone reconstruction so it is now a new entity, or if there has been a general fall in the market which occurred prior to the hearing and the majority's behaviour has been poor.) - Profinance Trust SA v Gladstone [2001]

Answer 43

Theoretically both options are available and it is really a matter of choice. ⁃ However the courts will normally be reluctant to wind company's up, especially if the company is profitable, thus a 994 petition is often more appropriate. ⁃ NB under s 125(2) IA 86 where shareholders bringing winding-up petition (under 'just and equitable ground'), as 'contributories', should use a reasonable alternative (eg, s 459 CA 85) where it is available, otherwise the court can dismiss the winding up petition.

Answer 44

When the parties cannot agree, and the matter has to go to the Court to determine the shares’ value. The general rule, subject to exceptions, is that you value the shares from the “date of the order”, rather than the “date of the petition”.

Answer 45

Often joint petitions. In Scotland: see Jesner v Jarrad Properties 1993 SC 34, [1993] BCLC 1032, where the Inner House wound up a company instead of granting a s 459 CA 85 order (now s 994 CA 2006). This case preceded O’Neill v Phillips (above). O’Neill case [1999] 1 WLR 1092, pp 1099H-1100C, indicates s 994 CA 2006 (then s 459 CA 85), rather than s 122(1)(g) IA 86, should be used. The Inner House, in Anderson v Hogg 2002 C 190, pp197-198 and 201 2002 SLT 354, pp 360 and 361, indicates (obiter) that Jesner v Jarrad Properties is not “inconsistent” with O’Neill v Phillips. English case law has now taken the same view as that in Scotland: see Hawkes v Cuddy [2009] EWCA Civ 291, [2010] BCC 591, paras 101-111. NB s 125(2) IA 86 - shareholders bringing winding-up petition (under “just and equitable ground”), as “contributories”, should use a reasonable alternative (eg, s 459 CA 85) where it is available, otherwise the court can dismiss the winding up petition. The Law Commission has looked at s 122(1)(g) IA 86 and s 459 CA 85: see Shareholder Remedies (1997) (Law Com No 246), which was referred to in O’Neill v Phillips (above).

Answer 46

uch loss is recoverable by the shareholder, where the loss is not “merely a ‘reflection of the loss suffered by the company’”: see Johnson v Gore Wood [2002] 2 AC 1, p 36, per Lord Bingham of Cornhill, quoting Prudential Assurance Co Ltd v Newman Industries Ltd (No 2) [1982] Ch 204, p 223. The loss has to be “separate and distinct”: see Johnson v Gore Wood [2002] 2 AC 1, p 36, ie, no recovery by shareholder for “reflective loss”.

Answer 47

?? This essentially says that where a director's conduct has resulted in a loss to a company and to a shareholder of that company, if the loss to the shareholder simply reflects the company's loss, then that shareholder cannot recover. Where the shareholder's claim is separate and distinct then they can recover their loss.

Shareholder's Remedies and Minority Protection Flashcards

(78 cards)