Shareholder Remedies
Minority shareholders might have little influence on the company. In private companies, it is harder to get rid of your shares. Directors may restrict a shareholder's transfer of his shares. Shareholders are not privy to duties. If a majority shareholder uses their vote on something such as defrauding the minority, they won't be able to use it. Vote must be used bona fide; for the benefit of the company.
What happens if the company is wronged by the directors? It suffers loss; shareholders lose out - particularly minority shareholders who have no influence on what happens. The company could take action against the wrongdoer, but if he or she is in control and/or a director, this will not usually happen - you wouldn't sue yourself!
Foss v Harbottle, 1840s, is still good law: There are two branches to this rule: if a wrong is done to the company, it must take action - it is a separate legal personality; if an act has been done by a company improperly/illegally, but it can be done properly/legally on the authority of an ordinary resolution, the court won't interfere in the internal management of the company. This is to stop a multiplicity of proceedings; and the rationale behind it is that courts should not interfere as majority rules (Prudential Assurance Co Ltd v Newman Industries Ltd (No 2) 1981).
Derivative actions: actions derive from a wrong done to a company: shareholders seek to enforce the company's right. This represents the company and all shareholders. This is to get compensation for the company from the breach by the directors. Derivative actions are now statutory, as there was concern that the common law position was not clear.
Proceedings must be brought by a shareholder. The claim must be in relation to a claim vested in the company. The shareholder brings the proceedings on behalf of the company. Proceedings can be brought against a director/other person in relation to a cause of action arising from a breach/negligence etc.
Permission process:
The shareholder must establish a prima facie case that he should be granted permission to continue.
The court can direct the company to file evidence indicating why they should refuse permission.
The court must refuse permission if it thinks the act has been ratified or authorised; or if they wouldn't continue the action.
The court will take into account:
Whether the shareholder is acting in good faith;
The importance which a person under a duty to promote success would attach to continuing the action;
Whether it can be ratified;
Whether the company has decided not to bring a claim;
The availability of another remedy to the shareholder;
The views of independent members of the company in relation to the action (those who don't have a personal interest in the matter).
Permission may be sought to continue a claim brought by the company and which could be pursued as a derivative claim on the basis that:
There has been an abuse of process;
The claim hasn't been prosecuted diligently;
It is appropriate for a member to continue the claim.
The majority of cases have involved permission being refused (around 16% are not refused)
A couple of recent cases have granted permission, e.g. Stainer v Lee 2010
Winding up on the just and equitable ground:
Courts have discretion on whether to order winding up
Winding up is a last resort; courts want businesses to continue if they can
There has to be clarity in a petition
A winding up petition is likely to be struck out (Re A Company 1997)
Courts have accepted some petitions (Re Copeland & Craddock Ltd 1997)
What happens if the company is wronged by the directors? It suffers loss; shareholders lose out - particularly minority shareholders who have no influence on what happens. The company could take action against the wrongdoer, but if he or she is in control and/or a director, this will not usually happen - you wouldn't sue yourself!
Foss v Harbottle, 1840s, is still good law: There are two branches to this rule: if a wrong is done to the company, it must take action - it is a separate legal personality; if an act has been done by a company improperly/illegally, but it can be done properly/legally on the authority of an ordinary resolution, the court won't interfere in the internal management of the company. This is to stop a multiplicity of proceedings; and the rationale behind it is that courts should not interfere as majority rules (Prudential Assurance Co Ltd v Newman Industries Ltd (No 2) 1981).
Derivative actions: actions derive from a wrong done to a company: shareholders seek to enforce the company's right. This represents the company and all shareholders. This is to get compensation for the company from the breach by the directors. Derivative actions are now statutory, as there was concern that the common law position was not clear.
Proceedings must be brought by a shareholder. The claim must be in relation to a claim vested in the company. The shareholder brings the proceedings on behalf of the company. Proceedings can be brought against a director/other person in relation to a cause of action arising from a breach/negligence etc.
Permission process:
The shareholder must establish a prima facie case that he should be granted permission to continue.
The court can direct the company to file evidence indicating why they should refuse permission.
The court must refuse permission if it thinks the act has been ratified or authorised; or if they wouldn't continue the action.
The court will take into account:
Whether the shareholder is acting in good faith;
The importance which a person under a duty to promote success would attach to continuing the action;
Whether it can be ratified;
Whether the company has decided not to bring a claim;
The availability of another remedy to the shareholder;
The views of independent members of the company in relation to the action (those who don't have a personal interest in the matter).
Permission may be sought to continue a claim brought by the company and which could be pursued as a derivative claim on the basis that:
There has been an abuse of process;
The claim hasn't been prosecuted diligently;
It is appropriate for a member to continue the claim.
The majority of cases have involved permission being refused (around 16% are not refused)
A couple of recent cases have granted permission, e.g. Stainer v Lee 2010
Winding up on the just and equitable ground:
Courts have discretion on whether to order winding up
Winding up is a last resort; courts want businesses to continue if they can
There has to be clarity in a petition
A winding up petition is likely to be struck out (Re A Company 1997)
Courts have accepted some petitions (Re Copeland & Craddock Ltd 1997)