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FLK 1: Business Law And Practice > Topic 6: Shareholders’ Rights And Remedies > Flashcards

Topic 6: Shareholders’ Rights And Remedies Flashcards

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1
Q

What is the principle that governs the decision-making process in a company?

A

Majority rule

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2
Q

What can minority shareholders do to influence decisions?

A

Join forces with other shareholders

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3
Q

What are some protections available to shareholders?

A
  • Membership rights
  • Shareholders’ agreements
  • Shareholders’ rights under CA 2006
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4
Q

What is the usual remedy for breach of membership rights under s 33 CA 2006?

A

Damages

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5
Q

What does s 33 CA 2006 state regarding a company’s constitution?

A

It binds the company and its members as if there were covenants to observe those provisions

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6
Q

Which rights are considered membership rights under s 33 CA 2006? List at least two.

A
  • Right to a dividend once declared
  • Right to vote at meetings
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7
Q

What is a key characteristic of Shareholders’ Agreements compared to Articles?

A

They can contain provisions that the law does not permit in the Articles

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8
Q

What is required for certain matters in a Shareholders’ Agreement to be valid?

A

Unanimous consent of all shareholders

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9
Q

What does a Shareholders’ Agreement provide that Articles may not?

A

A right of action enforceable directly between members

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10
Q

What is the minimum notice period required for a removal resolution under s 168 CA 2006?

A

28 clear days

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11
Q

What happens if the board does not place a removal resolution on the agenda of a GM?

A

Shareholders may need to force the directors to call a GM

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12
Q

Under s 303 CA 2006, how much voting share capital is required for shareholders to request a GM?

A

Not less than 5%

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13
Q

What must directors do upon receiving a s 303 request?

A

Call the GM within 21 days

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14
Q

What is the time frame within which a GM must be held after a s 303 request?

A

Not more than 28 days after the notice convening the GM

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15
Q

What can shareholders recover if they are forced to call a GM themselves?

A

Their reasonable expenses

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16
Q

What is the significance of the Articles in relation to membership rights?

A

They are deemed a complete contract and cannot have implied terms

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17
Q

What is a ‘removal resolution’ as defined under CA 2006?

A

A resolution to remove a director before the expiration of their office

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18
Q

True or False: Directors can be removed by the Board.

A

False

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19
Q

What is the effect of a breach of a Shareholders’ Agreement?

A

It can be enforced under general contract law principles

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20
Q

What must the Board do after receiving a s 303 notice from shareholders?

A

The Board has 21 days to decide whether to call a General Meeting (GM)

Under s 305(3) CA 2006, if the Board does not call the GM, shareholders can call it themselves within 3 months.

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21
Q

What is the timeline if the Board decides to call a GM after a s 303 notice?

A

The GM must be held within 28 days from the date of calling it

This timeline is outlined in s 305(3) CA 2006.

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22
Q

What can shareholders recover if they are forced to call a GM themselves?

Study These Flashcards
A

They can recover their reasonable expenses from the company

This is provided under s 305(6) CA 2006.

23
Q

What must the company do upon receiving notice of a removal resolution?

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A

The company must immediately send a copy of the notice to the director concerned

This requirement is stipulated in s 169(1) CA 2006.

24
Q

What rights does a director have upon receiving a notice of removal?

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A

The director has the right to make representations in writing and to be heard at the GM

This is outlined in s 169(2) and s 169(3) CA 2006.

25
What is a Bushell v Faith clause?
A clause that may give a director who is also a shareholder weighted voting rights at a GM ## Footnote This can prevent shareholders from passing an ordinary resolution to remove the director.
26
What happens if a director is removed but there is a shareholders' agreement requiring unanimous consent?
The resolution would still be valid, but the director could claim breach of contract ## Footnote This is because the statutory right allows majority shareholders to remove a director despite the agreement.
27
What is required for a payment for loss of office to a director?
It must be approved by the shareholders of the holding company ## Footnote No approval is needed for wholly-owned subsidiaries as per s 217(4) CA 2006.
28
What is a derivative claim under s 260 CA 2006?
A claim initiated by a member of a company for a cause of action vested in the company ## Footnote This claim is derived from the company's right of action which has not been exercised.
29
Which duties can lead to a derivative claim?
Negligence, default, breach of duty, or breach of trust by a director ## Footnote This is detailed in s 260(3) CA 2006.
30
Who can bring a derivative claim?
Only a member of the company can bring a derivative claim ## Footnote A former member cannot bring a claim, even for events that occurred during their membership.
31
What is the first stage in the process of bringing a derivative claim?
The member must obtain the permission of the court to continue the claim ## Footnote This is outlined in s 261(1) CA 2006.
32
What happens if the court finds no prima facie case in a derivative claim?
The claim is dismissed ## Footnote This can occur under absolute grounds or factors in s 263(3) CA 2006.
33
What does the court consider at the second stage of a derivative claim?
The court must consider the views of members who have no personal interest in the matter ## Footnote This requirement is established in s 263(4) CA 2006.
34
What is the rule in Foss v Harbottle?
A minority shareholder cannot sue for a wrong committed against the company ## Footnote This principle states that the company is the proper claimant.
35
What is the significance of the statutory right to bring a derivative claim?
It supports enforcement of directors' wider duties ## Footnote The remedy granted is to the company itself, not the shareholder.
36
What is the first stage in the two-stage process for court cases?
The court decides if there exists a prima facie case.
37
What happens if there is no prima facie case?
The claim is dismissed based on absolute grounds or factors to consider other options.
38
What does a prima facie case allow?
It allows the case to proceed to Stage 2.
39
What is the focus of Stage 2 in the court process?
Detailed consideration of criteria, including evidence from other members, and then proceeding to trial.
40
What are the remedies available to a shareholder under CA 2006?
* Membership rights enforcement under s33 CA 2006 * Shareholders’ agreements * Other rights under CA 2006 * Derivative actions under s260 CA 2006 * Unfair prejudice actions under s994 CA 2006 * Just and equitable winding up under s122 Insolvency Act 1986.
41
What does s 994 CA 2006 allow a member to do?
It allows a member to bring an action on the grounds of unfair prejudice.
42
List examples of conduct that may be held as unfairly prejudicial.
* Granting of excessive remuneration to directors * Directors’ dealing with associated persons * Non-payment of dividends.
43
How does a shareholder sue under s 994 CA 2006?
The shareholder sues for themselves.
44
What is the objective test in s 994 CA 2006?
It assesses whether the company's affairs are conducted in a manner unfairly prejudicial to the shareholder's interests.
45
What are the key principles of unfairly prejudicial conduct?
* Negligent management not sufficient unless serious mismanagement * Disagreements on company policy not grounds for petition * No need to show bad faith * Breaches of articles of association may indicate unfairness * Claimant's conduct may be relevant, but no 'clean hands' requirement * Courts take a wide view of excessive remuneration * Legitimate expectation of involvement in management for quasi-partnerships.
46
What powers does the court have under s 996(1) CA 2006?
The court can grant such orders as it thinks fit to provide relief.
47
What is the most commonly made order under s 996 CA 2006?
To provide for the purchase of the petitioner's shares by the wrongdoer(s).
48
What does the court consider in valuation matters?
* Fair price * Use of any valuation mechanism in articles * No discount for minority shares due to unfair conduct unless viewed as investment.
49
What may influence the valuation date in share purchase orders?
The date on which the court order was made regarding the sale of shares.
50
What is the implication of a shareholder rejecting a reasonable offer?
The claimant's behavior may be relevant in court decisions.
51
What is the downside of filing a s 994 petition?
It is likely to be expensive, time-consuming, and complicated with uncertain outcomes.
52
What is the right provided under s 122 Insolvency Act 1986?
The right for a shareholder to petition for the company to be wound up on just and equitable grounds.
53
What is the consequence of a company being wound up?
The company's life is effectively brought to an end.
54
What is common regarding petitions under s 122 IA 1986 and s 994 CA 2006?
It is common for both types of petitions to be made at the same time.

FLK 1: Business Law And Practice (14 decks)

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