Shareholders Flashcards
S33 CA 06
Shareholders can sue if their membership rights are infringed
Sue company and other SH
Membership rights include right to vote, receive dividend etc
(If not a membership right but want to be able to enforce, put it in SH agreement)
S260 CA 06
Derivative Actions
Shareholders can bring an action ON BEHALF OF THE COMPANY where Ds have breached their statutory duties
D does not have to have benefited personally from the breach
Under S260 can bring claim against Ds and 3P
Process for brining derivative action?
1) Get court’s permission to continue claim
Member makes prima facie case
Permission must be refused if the action does not promote the success of the company
2) If not dismissed, court will consider particular criteria
Including view of members who have no personal interest in the claim
BUT; courts have adopted restrictive approach - expensive and uncertain and coming from co money
S994 CA 06
Unfair Prejudice
SH can bring a claim on the grounds that the company has acted in a way that is unfairly prejudicial to SH
(i.e. excessive pay to Ds - Maidment v Atwood)
SH suing on behalf of himself, not the company
Re Guidezone Ltd (2000)
What is unfairly prejudicial conduct?
Objective test - what the reasonable bystander would consider unfairly prejudicial
What is unfairly prejudicial conduct?
For negligence or inept management to pass must be serious and repeated
Disagreement over company policy is not enough
But do not need to show bad faith or conscious intent
Excessive remuneration (Maidment v Attwood)
Legitimate
Maidment v Attwood
Unfairly prejudicial conduct includes excessive remuneration to directors
Ebrahimi v Westbourne Galleries
Unfairly prejudicial conduct includes where the SH had a legitimate exception of continuing to be a director
S996 CA 06
If S994 action proved, court can grant an order as it sees fit
Most common remedy for unfairly prejudicial conduct under S996 CA 06?
Order purchase of petitioners shares
Value is controversial - encourage independent valuation, to ensure fair price
Shareholder Agreements
Companies act will prevail but will still be possible to sue for breach of contract
Can use SH to agree things outside the scope of the articles, as company cannot restrict its statutory powers in its articles
If the company is party to the SH agreement - can only sign up to some, non-restrictive provisions
Wrongful dismissal
Where employer in dismissing employee has breached the contract of employment i.e. did not give required notice or PILON. 6 year limitation period as contract claim.
Remedy - damages for breach of contract. Is duty to mitigate losses.
Unfair dismissal
Only employees can bring claim
Must have been employed for 2 years
Must show was dismissed
BOP on employer to show it was fair in reasoning and procedure (ACAS procedure)
Capability + conduct are 2 / 5 legit reasons for dismissal
3 month limitation period
Remedies - reinstatement, rengagement, compensation
Damages:
1) basic award which is age x service years x pay
2) compensation - actual loss suffered
Get additional 25% if ACAS procedure was not followed
4 types of restrictive covenant?
1) Not disclose confidential information (implied)
2) Non-compete
3) Non-dealing
4) Non-solicit
Non-compete clause
Prevents employee from working for a competitor or setting up a competing company
Non-dealing clause
Prevents the employee having dealings with ex-employees AND customers
Non-solicitor
Prevents the employee from soliciting customers AND staff to join new business
When is a restrictive covenant enforceable?
General rule - restraints on trade (restricts employee from earning a living) are VOID and UNENFORCEABLE
Unless;
Protect a legitimate interest of business (i.e. customer connections) AND
Must not go further than REASONABLY NECESSARY to protect those legitimate interests
Courts will enforce as minimum as can to protect business interests
Courts will not enforce if restraint on trade
If employer breaches agreement i.e. wrongful dismissal, contract repudiated and restrictive covenants cease to be live
Blue pencil test?
Courts will not rewrite a restrictive covenant to make it enforceable
May strike out the unenforceable part but the rest must make independent sense to be enforceable
Criteria for assessing reasonableness of restrictive covenants:
Duration Geographical location Needs & interest of business Duties of employee Interest business trying to protect
Is the clause drafted wider than necessary to protect the employer’s business interests?
S217 CA 06
Need SH approval by ordinary resolution for payment made to a director for loss of office
Exception - if less than £200
Includes when the payment is made to a connected person - S215
Settlement Agreements
The general rule is that an employee’s right to bring action cannot be excluded, unless the agreement fulfils requirements in S203 ERA
Should restate the restrictive covenants in a settlement agreement - more likely to be enforceable as this agreement negotiated
Restrict future claims that haven’t arisen yet i.e. personal injury, pension rights
Include clause requiring buy-back of shares
Agree good reference and schedule
S203 ERA 1996
For a settlement agreement to be enforceable, the agreement must:
1) Be in writing
2) Refer to a specific claim or particular proceedings
3) Identify an independent advisor who the employee has received advice from
4) Advisor his prof. indemnity insurance
5) State S203 requirements are satisfied
Service Contracts
Must have a clause which states that if the D ceases to still be a D, agreement will continue (so no claim for wrongful dismissal)
Garden leave clause - company can reduce or withdraw duties, but continue to receive salary
Garden leave clause may be possible unenforceable if in a fast paced industry
PILON clause - important so that if terminate without notice, will not be in breach of contract so restrictive covenants will stay enforceable
