Dec 22

My fellow shareholders disagree with my views – what can I do?

Written by Jonathan Mortimer
Partner

DDI: 01423 726608
M: 07850 993952
E: jonathan.mortimer@raworths.co.uk

For a business to grow and prosper, it is vital that the people at the helm get on and have a shared vision about key issues of strategic importance. Where a business is run through a private limited company, it is also essential that shareholders have a good relationship and that the rights of both the majority and minority members are respected.

Where a disagreement arises between shareholders, for example about the direction a company is taking or the way in which it is being managed, then a dispute can develop which could easily get out of hand if not tackled quickly.

Whether you are a majority shareholder whose strategic plans for a company are being blocked, or a minority shareholder whose views on the future direction that a company should take are being unjustifiably ignored, the basis on which your dispute might be capable of being resolved will depend on a number of factors.

These tend to include such matters as:

• whether there is a shareholder agreement in place, and, if so, the rights and options it confers on you and other members to take and be involved in key strategic decisions;
• any relevant rights and options set out in the company’s articles of association;
• the stated purpose and objectives of the company as detailed in the memorandum of association;
• any relevant provisions contained in a director’s service agreement or contract of employment, where you are also a company director or a company employee;
• any agreement or understanding about your role in the company, or the extent of your rights and powers, that was reached or existed at the time the company was formed or at the point that you became a company member;
• what the dispute is about and whether the damage caused to relations between you and the other members is terminable or possibly capable of being reversed; and
• what your ideal outcome to the dispute is and whether that involves you continuing to be a member of the company or else perhaps securing an exit on agreed terms.

The vast majority of shareholder disputes can be resolved by simply reminding the other members (in firm and unequivocal terms) of their obligations towards you in the company’s articles of association and any shareholder agreement that exists.

That said, there are cases where this is not enough and where it instead becomes necessary to point out any other legal avenues that may be open to you to ensure you are treated fairly and in accordance with any contractual or statutory rights that you have.

For example, depending on the nature and extent of your shareholding and what it is that has happened to give rise to the dispute, it may be possible for you to:

• issue an unfair prejudice petition at court, on the basis that the way the company’s affairs are being conducted is unjustifiably detrimental to your interests and which, if granted, could lead to the company or another shareholder being compelled to acquire your shares at a fair and independently assessed price; or
• issue a winding-up petition against the company, on the basis that there has been a loss of mutual trust and confidence which is now impeding the company’s management, and which therefore makes it just and equitable for such an order to be made and which, if granted, could lead to the company being forced to close.

However, as confirmed by the High Court in the recent case of Duneau v Klimt Invest SA & Others (2022), a winding-up order is only likely to be made where you can show that there is no other appropriate right of redress open to you and that, where there is, your decision not to pursue this can be said to be reasonable in the circumstances.

One scenario in which a winding-up order on just and equitable grounds might be justified is where there has been a breakdown in trust and confidence between you and the other members of a company which can lawfully be categorised as a quasi-partnership.

While this will be a question of fact, depending on the circumstances in which your company was established and the discussions that took place at the time you joined or the company was formed, there is a good chance that you will fall into this category where:

• the company was established with members of your family or a long-term friend; and
• the business has been built on mutual trust and confidence and on an understanding that you and other founding members should have the right to participate in the company’s management and to be consulted about key strategic decisions.

By taking legal advice at an early stage, you can find out quickly what your rights as a shareholder are and the options open to you to address your concerns. This means that you can then commence discussions with the other company members from a position of strength, knowing what a good deal looks like from your perspective.

It is important to say that legal proceedings are not inevitable.

If you come to us for help at an early stage, there is a good chance that we can support you to resolve things amicably through a negotiated settlement, or we can encourage your opponent to attend a mediation with you to explore terms for a fair compromise.

How to contact our Dispute Resolution team based in Harrogate

To find out more, please contact Jonathan Mortimer, a partner within the Dispute Resolution team at Raworths via email at jonathan.mortimer@raworths.co.uk

Raworths is based in Harrogate, North Yorkshire.

This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.

Published on 19 December 2022