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WS4: Shareholders Flashcards

1
Q

What do the Articles of a company do?

A

Regulate the relationship between members and each other and between members and the company.

A contract

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2
Q

What action do members of a company have under S33 CA?

A

If your membership rights are infringed, you can sue - remedy usually is damages

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3
Q

Give examples of some ‘membership rights’?

A

Right to a lawfully declared dividend

Right to a share in surplus capital on a winding up

Right to vote at meetings

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4
Q

What kinds of rights are not enforceable under S33 CA?

A

Rights of members which are not membership rights

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5
Q

Will a court imply terms into a company’s Articles?

A

No

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6
Q

How should shareholders protect any rights they have or want other than membership rights?

A

Enter into a separate agreement / contract - commonly called a shareholders’ agreement

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7
Q

Who does a shareholders’ agreement bind?

A

Shareholders themselves - not the company

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8
Q

Who do the articles bind?

A

Contract between the company and its shareholders

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9
Q

What kind of agreement must a company not be a party to?

A

Any terms that restrict its statutory powers

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10
Q

How can a breach of a shareholders agreement be enforced?

A

Usual way under contract law principles; shareholder can claim for breach of contract, or can apply to the court for an injunction to prevent a breach of the terms of the agreement

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11
Q

What is the effect of a reserved matter in a shareholders agreement?

A

Some matters can be reserved as matters requiring the consent of all shareholders / certain individual shareholder

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12
Q

How is a shareholder protected if a right they have agreed in the shareholders agreement is then violated by a procedure in the Companies Act?

A

If something happens in articles e.g. removal of a director which breaches a shareholders agreement provision, it still bind the company but a claim could be made against the other shareholders for breach of the shareholders’ agreement

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13
Q

Why might a shareholders’ agreement afford stronger protections than the Articles?

A

Articles can be amended by 75% resolution - shareholders agreement only by unanimity.

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14
Q

Give some examples of the rights of any shareholder in a company?

A

Be notified of a GM

Appoint a proxy to attend a GM

Vote at a GM

Receive a dividend

Receive a copy of the company’s accounts

Inspect minutes and company registers

Apply to court to prevent a breach of directors duties

Commence a derivative claim

Bring a UP petition

Petition for just and equitable winding up

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15
Q

What rights do shareholders with 5% or more of the shares have?

A

Require directors to call a general meeting

Require circulation of written statements regarding proposed resolutions to be considered at a GM

Circulate a written resolution

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16
Q

What rights do shareholders with 10% or more of the shares have?

A

Right to demand a poll vote

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17
Q

What rights do shareholders with 25% or more of the shares have?

A

Block a special resolution

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18
Q

What rights do shareholders with 50% or more of the shares have?

A

Block an ordinary resolution - but can’t pass it alone

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19
Q

What can shareholders with 75% of shares do?

A

Pass a special resolution

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20
Q

What resolution is needed to remove a director?

A

Ordinary resolution - of shareholders

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21
Q

Can the board remove a director?

A

No, not unless Articles have been amended

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22
Q

If a director is subject to a removal resolution and they are also a shareholder, can they vote?

A

Yes, in their capacity as a shareholder.

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23
Q

What notice is required for a removal resolution?

A

Special notice of 28 clear days.

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24
Q

What procedure cannot be used for the removal of a director or an auditor?

A

Written resolution procedure.

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25
If a board of directors puts a removal resolution on the agenda of a GM, how should it notify shareholders?
In the same time and same manner as it gives the notice of the GM
26
How many clear days notice must the board give shareholders of a GM?
14
27
If the board can't notify shareholders of removal resolution alongside notice of the GM, what else can it do?
Notice of removal resolution can be given by advertisment in a newspaper or any other mode allowed by the company's articles.
28
Are directors bound to put a removal resolution on the agenda for a GM?
NO, they are not.
29
What can shareholders do if the directors refuse to put the removal resolution on the agenda?
Shareholders together holding not less than 5% of the paid up voting share capital can serve a request on the company
30
What must be detailed on a S303 request?
General nature of business that shareholders want to be dealt with at the GM Text of any resolution they want proposed at the GM
31
What obligations are triggered when the directors receive a S303 request?
S304: directors must call a GM within 21 days from the date on which they became subject to the S303 request, to be held on a date not more than 28 days after the notice calling the GM
32
What can the shareholders do if directors fail to call a GM after a S303 request?
All of the shareholders who submitted S303, or any of them representing more than one half of the voting rights of those who submitted the s303 request can call a GM themselves, under S305
33
What time limits apply if the shareholders end up calling the meeting themselves?
GM called on no less than 14 clear days notice, and held within 3 months of the date that the directors' received the s303 request.
34
What kind of costs can be recovered from defaulting directors if shareholders are forced to call the GM tehmselves?
Reasonable expenses for doing so from the company Company can retain any sums from defaulting directors remuneration.
35
What should shareholders submit alongside their S303 request in order to put as much pressure on the board as possible?
Also should submit the S312 special notice at the same time
36
What is the latest day on which the board must hold the GM if it co-operates with the S303 notice?
day 50 - day 1 being the day of the s303 request 21 days to decide whether or not to call + 28 days to actually hold the meeting
37
What is the latest day that the GM will happen if the board does not co-operate with a S303 notice
Day 38 Board has 28 days to call a GM but if it fails and loses control of the process, shareholders can call a GM on standard notice - 14 days
38
How long is the longstop on when a GM must be held from s303 request?
3 months of s303 request
39
What must a company do if it receives notice that one or more members intends to propose a removal resolution?
Immediately send a copy of the notice to the director concerned, even if the board decided not to put the removal resolution on the agenda
40
When a director is told that there is a removal resolution about them pending, what can they do?
Make representations in writing, of a reasonable length Circulated to company or read out at the relevant GM Speak at the GM
41
When there is a removal resolution, what should you check for in the articles?
Bushell and Faith clause Transfer provisions governing transfers of shareholdings in the company.
42
What is a Bushell v Faith clause?
Clause which means shareholders are unable to pass ordinary resolution to remove director because they can aggregate their votes.
43
Is a director who is removed entitled to any compensation for loss of office?
Yes, subject to an ordinary resolution unless Payment is less than £200 or made in good faith in discharge of a legal obligation, by damages, in settlement / compromise, or as a pension.
44
should a payment to the director of a holding company be approved by that company?
Yes - no need from the shareholder of a wholly owned subsidiary
45
if a director is being paid for loss of office after a removal, what formalities must be fulfilled?
A memorandum setting out particulars of payment must be made available to shareholders for 15 days before the ordinary resolution is passed ending with the date of the general meeting.
46
What other loss of office payments require shareholder approval?
Payment made by any person to a director in connection with the transfer of the whole or part of the undertaking or property of a company Payment in connection with transfer of shares / subsidiaries resulting from a takeover bid
47
What is a S260 derivative claim?
A claim initiated by a member of a company, in respect of a cause of action vested in the company, seeking relief on behalf of the company
48
For who is the remedy of a derivative claim granted to?
Company
49
When can a derivative claim be brought?
Cause of action arising from an actual or proposed act or omission involving negligence, default, breach by a director of the company
50
Must a director have benefitted personally for a derivative claim to be brought against them?
No
51
When can third parties be defendants to derivative claims?
Provided that the main cause of action is in respect of a relevant breach by a director Only permitted in very narrow circumstances
52
Who can bring a derivative claim?
Must be brought by a member - cause of action can rise before or after the person bringing the claim became a member of the company
53
What is the first stage for bringing a derivative claim?
Permission of the court - bringing a prima facie case
54
Give an example of when a s260 claim might be refused permission in stage 1?
if the court is satisfied that a person acting in accordance with their S172 duties would not seek to continue the claim.
55
What other factors might the court consider when judging whether to continue a claim?
Is the member acting in good faith? Would the act or omission be likely to be ratified by the company?
56
What perspectives will the court have particular regard towards in the second stage of a derivative claim?
The viewpoints of any members who have no interest, direct or indirect, in the matter
57
Who is the claimant in a s994 unfair prejudice petition?
Shareholder sues for themselves
58
Give examples of unfairly prejudicial conduct?
Granting excessive remuneration to directors Directors dealings with associated persons Non-payment of dividends
59
Is the negligent management of a company unfairly prejudicial conduct?
Not unless the conduct amounts to serious / repeated mismanagement which puts at risk the value of the minority shareholders' interest
60
Do you need to show bad faith for an unfair prejudice claim?
no - no need for conscious intent
61
Does the claimant need to come to court with 'clean hands' for unfair prejudice?
No - although the court will look at all their conduct
62
Can a legitimate expectation to be involved in management which has been denied be called unfairly prejudicial conduct?
Yes
63
What remedies are granted under UP?
Any order that the court thinks is fit to provide relief to the shareholder. most common - purchase order by wrongdoer
64
How should the valuation of any minority shares be calculated?
First attempt - valuation mechanism in the articles if no fair method - court valuation needed courts will not impose a discount on the minority shareholding if a family run business, but would be more inclined to if shareholding held as an investment / company operated on more commercial lines Behaviour of the petitioner will be relevant - e.g. if they have previously rejected a reasonable offer
65
What is the valuation date for the sale of shares in UP petition?
Date of the court order
66
If there is a dispute over the value of shares, how will the court encourage settlement?
Binding 3rd party valuation of shares
67
When will a petitioner bring a just and equitable winding up order?
Most drastic - liquidation of the company - only if the company can't continue - tends to be in small quasi partnership companies with a legitimate expectation of management.
68
Give a classic example of unfairly prejudicial conduct?
Serious and repeated mismanagement
69
How would a question phrase a derivative action?
A claim brought by the company, against the wrongdoer

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