Shareholder Disputes
Shareholder disputes can arise for a number of reasons, including a difference of opinion over the direction of the business or how the company should be managed. Disputes can be more common when there is not a clear shareholder agreement in place and/or adequate protections.
Navigating a shareholder dispute requires expertise and finesse, which is why it is imperative that you seek legal advice whether you are a claimant or defendant. We are able to provide well-rounded advice by working alongside our other specialists team, including corporate and employment.
The team at JMW has significant experience in acting for both claimants and defendants in shareholder disputes. To speak to one of our solicitors with expertise on shareholder disputes, please contact us by calling 0345 872 6666, or fill in our online enquiry form to request a call back.
View video transcript
Hello. I'm Steve Morris. I'm a Partner in the Commercial Litigation department at JMW. In the disputes that I see, it's often the case that there's misunderstanding or blurring of the lines between directors and shareholders.
The directors are appointed by the company to act on its behalf shareholders or members as they're often referred to own some or all of the company through their investments. They have an entitlement to sharing the profits of the company. Duty are typically owned by directors rather than shareholders. Director's duties arise from a number of sources So the company's articles, statute, the most obvious example is the company's Act, the requirement, the director acts in the best interests of the company.
There's also common law duties, so duty of confidence and also our fiduciary duty to act in good faith. The articles of association are compulsory company has to have articles, whereas the shareholders' agreement is a voluntary document. The articles bind the company its members, its shareholders and its directors, and there are public documents. The shareholders agreement is a private document, and it's only by the parties to the agreement, typically the shareholders themselves.
So shareholders' rights are typically enacted through their ability to vote at shareholders' meetings. A shareholder with over fifty percent of the shares in in a company can pass of itself an ordinary resolution. More serious decisions are made by way of special resolution which requires over seventy five percent of the shareholders to vote in favor of Well, in the case of minority shareholders, the sorts of examples we tend to see is directors acting in breach of their high judiciary duties, actions being taken which benefit a certain class of shareholders over others in the case of equal shareholdings.
The usual classic problem is a deadlock situation whereby each set of fifty percent shareholders can block an ordinary resolution being passed but can't actively make that decision of themselves and that creates a deadlock situation. Well, these sorts of disputes highlight why it's so important to have a properly drafted set of articles from the outset and also ideally shareholders' agreement in place. Monarch shareholders can issue a petition to the court if they believe that their minority interest has been unfairly prejudiced. Alternatively, a minority shareholder could issue a set of proceedings called a derivative action, which is where the shareholder effectively seeks the court's permission to step into the shoes of the company and take action usually against directors who are acting unlawfully or in breach of their fiduciary duties on the part of the company.
A last resort is also for an application to be made to court for an order for the winding up of the company.
How JMW Can Help
Obtaining legal assistance at an early stage for advice on a shareholder’s rights, and the best options and strategies to follow can be extremely valuable. JMW Solicitors is highly experienced in acting for both claimants and defendants in shareholder disputes, and can advise you on any tactical considerations along with the remedies that may be available in any particular situation.
Some of the ways in which JMW can assist you with your shareholder disputes include:
- Advising on potential breaches of a shareholder’s agreement
- Acting for either the majority or minority shareholder in unfair prejudice proceedings
- Obtaining expert advice in support of the claim or defence - for example, in areas such as a company valuation or investigations into unauthorised transactions
- Advising on breach of warranty claims and indemnity claims
- Advising on the bringing or defending of derivative actions
- Advising on the just and equitable winding up of a company
- Advising in respect of any misrepresentation claims
- Advising where negligent advice may have been given in respect of a transaction
Examples of Shareholder Disputes
Shareholder disputes can arise because of a number of factors. For example, disputes may arise over the management and running of the company (or a shareholder’s exclusion from the management of the company), a breach of a shareholder’s agreement, a conflict of interest, or concerns over potentially fraudulent activities by one or more of the directors.
Disputes can also arise in relation to the sale or purchase of a business. Commonly, disputes occur where one party has breached a term of a share purchase agreement or the purchaser learns post-sale that warranties provided by the seller were false. Alternatively, claims can arise when a shareholder feels that they have been badly advised in respect of, or misled into entering into, the sale or purchase of a business.
Remedies for Shareholder Disputes
Examples of some of the remedies available to resolve a shareholder dispute include:
- A shareholder departing the company with their shares being bought back
- Negotiating enhanced protections for shareholders
- Implementing more restrictions on the power of directors and/or imposing specific obligations upon them
- The payment of compensation
- Restoration of company property
Talk to Us
To discuss a potential shareholder dispute with us, simply call 0345 872 6666, or fill in our online enquiry form to request a call back at a convenient time.
