Commercial Litigation & Dispute Resolution

Shareholder Disputes

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Shareholder Disputes Solicitors

The two most common shareholder disputes actions are an unfair prejudice petition and derivative action.

How do you resolve shareholder disputes?

An unfair prejudice petition takes place under Section 994 of the Companies Act. Here, a minority shareholder who believes that the company is treating some or all of its members unfairly can ask the court to step in. Examples include:

  • Failing to pay dividends to the shareholders
  • Breaching the terms of the articles of association
  • Mismanagement by the board
  • Money being unfairly paid out e.g. majority shareholders taking the lion’s share of remuneration
  • Inappropriate exclusion from decision making

 

Typically, a section 994 action will result in the petitioning shareholder being bought out by the other shareholders – although the court can make other awards.

With a derivative action, shareholders can step in if wrong has been committed against the company but the directors are unable or unwilling to pursue it themselves – often because they are the perpetrators. The Companies Act 2006 gives shareholders the right to “stand in the shoes” of the company to make the claim.

Pragmatic solutions to shareholder disputes

Our commercial disputes and business departments work hand in hand to resolve shareholder disputes, as the majority lead to some type of settlement, whether negotiated or arising out of formal litigation. Remedies range from straightforward ‘clean break’ buyouts to the company purchasing its own shares, to a demerger where the business is split up and transferred into the names of different shareholders.

A negotiated agreement is generally preferable to a court award as the parties have much more freedom to resolve shareholder disputes creatively and structure the transaction in a tax-efficient manner.

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