A Guide to Resolving Disputes for Minority Shareholders

What Does the Law Say?

A shareholder may apply to the court for relief where the affairs of the company are being conducted in a manner which is unfair and prejudicial to their interests (this includes financial interests). Such an action is known as an unfair prejudice petition.

Where unfair prejudice is established, the court will have wide discretion to remedy the unfair prejudice. This can include:

• requiring the company to do, or refrain from doing certain acts
• more commonly, ordering the majority shareholders to purchase the shares of the shareholder making the claim, on such terms it thinks fit

An Example

In this recent case, a minority shareholder in a family run coffee business filed an unfair prejudice petition against the company’s three other shareholders, who together made up the board of directors.

The minority shareholder complained that the directors had abused their powers by improperly paying themselves excessive remuneration, failing to consider in good faith whether dividends should be paid to shareholders and damaging the company's financial position by authorising unsecured and interest-free directors' loans to themselves.

The court held that all three of the examples unfairly prejudiced the minority shareholder and remarked that the directors had used the company as a "piggy bank to make personal expenditure at a high level on their behalf".

The court ordered the majority shareholders to purchase the minority shareholder's shares from her, at full market value, understood to be in the region of £7million.

Best Practice

Disputes amongst shareholders are common and can often be inevitable. Court proceedings can be an expensive and time consuming way to settle disputes, and should only be considered as a last resort.

You should always have a clear shareholders' agreement in place to help regulate disagreements amongst shareholders, and avoid the need to seek redress from the court.

If you would like to have a shareholders' agreement for your company, please contact Emma Cameron in our Corporate Law team on 01923 919 305 or complete the below form.