Door open for minority shareholders to challenge unfair conduct in court
Question : I am a minority shareholder in a private company and I'm unhappy with decisions which have been taken recently. Is there anything I can do?
Michael McCord, head of commercial litigation and construction at Tughans Solicitors says:
Majority rule is a general principle of company law.
This means that the wishes of the minority are generally subordinated to the wishes of the majority.
Having said that Parliament has decided to provide minority shareholders with protection in company legislation which allows a minority shareholder to seek relief from the court if he or she is the victim of conduct on the part of the majority which is "unfairly prejudicial".
In deciding whether conduct is unfair the starting point is to look at any agreements in place between the shareholders as unfairness will always be judged in that context.
However the sort of behaviour the courts will regard as unfair is conduct on the part of the majority which puts their own personal interests ahead of the interests of the company.
Examples include diverting commercial opportunities to themselves instead of bringing them to the company or paying themselves unduly high salaries such that dividends are diluted unfairly.
If unfairly prejudicial conduct is established the court can grant whatever relief it thinks fit to cure the unfairness.
However the most common order granted is that the majority purchase the shares of the minority for fair value in what really amounts to a commercial divorce.