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SHAREHOLDERS’ RIGHTS AND REMEDIES - Coggle Diagram
SHAREHOLDERS’ RIGHTS AND REMEDIES
PROTECTION OF SHAREHOLDERS
1. Membership rights under the articles
The Articles regulate the relationship between the
members and between the members and the company
Members can
sue under s 33 CA 2006 if rights are infringed
= usually for
damages
Enforceable rights:
right to lawfully declared dividend / share in surplus capital on a winding up / vote at meetings / receive notice of GMs and AGMs
Not membership rights are not enforceable
2. Shareholders Agreements
Extension of Articles containing
provisions that the Articles cannot contain
, such as
Unanimous voting / Quorum for GMs / Dividend policy / Allotment of new shares
Constitute personal rights / obligations on the shareholders
Enforceable as
breach of contract / injunction to prevent breach
Changes
to it require
unanimous approval of parties
3. Shareholders’ rights under CA 2006
Depend on
shareholding %
, notable:
5% or more
= Require directors to
call GM
/ Circulate a
written resolution
10% or more
= Demand a
poll vote
SHAREHOLDERS REMEDIES
1. REMOVAL OF DIRECTORS BY OR
Shareholder can remove a
director before expiration of their period of office by OR
Must give notice of
removal resolution to the Board at least 28 clear days before GM where removal resolution will be voted on by shareholders
IF director = shareholder
they can vote at OR
After receiving special notice > board has 2 options:
1. Place removal resolution on GM agenda
Board gives notice of
removal resolution and of GM to shareholders at least 14 car days before GM
IF not practical - removal resolution notice may be given by
advert in paper / other way 14 clear days before GM
2. Not place removal resolution on GM agenda
Boar is not obliged to do do >
shareholders (w 5% or < of paid up voting share capital) could force Board to call GM per s.303
IF THEY DO > Board must call
GM w/in 21 days of request to be held no later than 28 days after date of notice calling GM
IF BOARD DOES NOT >
all shareholders / shareholders with more than half of voting rights of those who submitted request = can call GM themselves on 14 days clear notice + held w/in 3 months of date that Board received request
Usual for shareholders to submit special notice + s.303 request
After receiving special notice >
Board must send copy to director concerned who can make written representations to be circulated to members + read at GM
If director = shareholder > there are 2 options:
1. Bushell v Faith clauses
IF PRESENT =
give directors weighed voting rights at GM where removal resolution is proposed
(usually in Articles of small companies)
Effect =
hard for shareholders to pass OR to remove them
2. Shareholders’ Agreements
IF PRESENT =
may provide that unanimous shareholder consent is required for director removal resolution to be passed
Effect =
removal resolution can still be passed + direct may be removed BUT director would have claim against other shareholders
for breach of shareholder agreement
Once director is removed > 2 consideration
1. Compensation to director for loss of office
Must be
approved by shareholders via OR
UNLESS
less than £200
OR
payment is made in
good faith
discharge of
existing legal obligation
by way of
damages in respect of such obligation
in
settlement of claim in connection with termination
; or
by way of
pension in respect of past services
2 Shareholder must also approve:
payment for
loss of office made to a director in connection with transfer of whole / part of the undertaking or property of company
OR
made to a
director in connection with a transfer of shares in the company / one of its subsidiaries, resulting from a takeover bid
2. DERIVATIVE CLAIMS
Shareholders can bring a derivative claim
on behalf of company where directors have breached their statutory duties
(exception to rule in Foss v Harbottle) in these cases:
in respect of a
cause of action vested in the company due to actual / proposed act or omission involving negligence, default, breach of duty or breach of trust
AND
seeking
relief on behalf of the company
NO requirement that director has benefited personally the breach
Brough against:
Director
(including
shadow + former directors) + another person (3P
) due to
actions / omissions of director
Brought by:
Member
(also in respect of
events that occurred before they became a member
)
NOT former
members
Process
:
Stage 1 - Requirement for court approval
Member
must obtain the court's permission showing a prima facie case
Permission may be refused if person
acted in accordance with s 172 CA 2006 or granted by taking information account factors
IF PERMISSION GIVEN = go to stage 2
Stage 2 - Court considers particular criteria
Particular regard to
evidence from members
CASE then
proceeds to trial
3. UNFAIR PREJUDICE
Member can may apply to the court for an order on the grounds that:
the
company is being run in such a way that they have suffered unfair prejudice
OR
actual / proposed
act or omission of the company is prejudicial
Shareholder
sues for themselves + must show prejudice by reasonable bystander
(objective) test.
Conduct NOT amounting to unfair prejudice:
Negligent or inept management
– UNLESS
serious + risking shareholder’s interest
Disagreements as to company policy
Bad faith – NO need to show it for conduct to be prejudicial
Breaches of the articles of association
– UNLESS
concerning how affairs of the company should be conducted
Conduct amounting to unfair prejudice:
Claimant’s conduct – no nee for claimant come to court with “clean hands
Excessive remuneration
Legitimate expectation to be involved in management
Remedies
Court can grant such order as it thinks fit
Usually to
purchase petitioner’s shares by the wrongdoer
using following rules:
Valuation mechanism set out in the articles = no discount
UNLESS shareholding is viewed as an
investment or company is operated along more commercial lines
valuation date
=
when the court order is made in respect of the sale shares
HOWEVER =
expensive + time consuming
> other orders may be more appropriate is shareholder does to want for court to make order
4. JUST AND EQUITABLE WINDING UP
Shareholder brings
petition to court for company to be wound up as it is just and equitable to do so
Court has
discretion as it is must drastic
Unfair prejudice + just and equitable winding up = usually brought together