Ways To Help Resolve A Shareholder Dispute

Shareholder disputes can be a significant concern for any company. Disputes can arise for many reasons, including disagreements over the direction of the company, management decisions, or dividend payments. Under English law, shareholders have legal rights and protections, including the right to take action against other shareholders in cases of unfair prejudice or even cause the company to take the action, know as a derivative claim. This blog post will explore the concept of unfair prejudice under the Companies Act and the legal remedies available to shareholders who require legal services.

Unfair Prejudice under the Companies Act

Section 994 of the UK Companies Act 2006 provides for the concept of unfair prejudice. Unfair prejudice occurs when the company's affairs are being conducted in a manner that is unfairly prejudicial to the interests of one or more shareholders, usually the minority shareholders but it can also arise where the shareholders are 50:50. This can include actions taken by the company or by other shareholders.

Examples of actions that may constitute unfair prejudice include:

• Diverting company assets for personal gain
• Excluding shareholders from decision-making processes
• Diluting the value of a shareholder's shares
• Failing to pay dividends to shareholders when appropriate

Legal Remedies for Shareholders

If a shareholder believes that they have been subject to unfair prejudice, they may instigate Court proceedings by issuing an unfair prejudice petition pursuant to s994 of the CA 2006. The following remedies are available in successful actions:

1. Shareholders may apply to the court for an order to bring an end to the unfair prejudice.
2. Shareholders may also seek an order for the company to purchase their shares at a fair value or the majority shareholders to buy out the minority shareholders who have suffered the unfair prejudice, for fair value.
3. Shareholders may seek damages or compensation for any loss suffered as a result of the unfair prejudice.

In considering whether to make an order for relief, the court has a wide discretion and will consider the following factors:

• The nature of the conduct complained of
• The effect of that conduct on the company and its shareholders
• The effect of the conduct on the complaining shareholder
• The extent to which the conduct was consistent with the company's constitution and its principles of governance

It is important to note that shareholder disputes can be costly and time-consuming, and it is often in the best interests of all parties to seek alternative methods of dispute resolution, such as mediation or arbitration. These methods can be less expensive and less time-consuming than going to court, and they can help to preserve the relationships between the parties involved.

By A. E. Verona Cocks, partner & Sam Till, work experience student.

Get in Contact

If you have a shareholders dispute and would like further advice please contact Verona Cocks either by email verona.cocks@paddleandcocks.co.uk or on 01872 672072 or 0203 7456535

The information in this blog is intended to be general information about English law only and not comprehensive. It is not to be relied on as legal advice nor as an alternative to taking professional advice relating to specific circumstances.