Thursday May 12, 2022
Many private companies start life informally and over time differences can emerge between the directors and/or shareholders. This can happen, for example, if one shareholder is not pulling their weight, is taking too much out of the business or is diverting business or opportunities to a new business which they intend to join/establish.
In an ideal world the shareholders (and the directors) would agree a Shareholder’s Agreement early in the life of the business which would provide for when decisions must be made unanimously, voting rights and provisions attaching to the transfers of shares and distributions via dividends.
In many cases, for various reasons, no such agreements are in place, the position then is governed by the Companies Act 2006 and the normal rule is that a simple majority of shareholders can remove a director from office. However, if that director is also an employee this can ultimately give rise to dismissal claims.
A minority shareholder who holds less than 50% of the shares is in a relatively weak position as he is unable to control the board. If the shareholder has complaints about how they are being treated (for example being excluded from management) they may be able to apply to the Court for relief on the ground that the affairs of the company are being conducted in a manner that is unfairly prejudicial to them. This is referred to as a claim under Section 994 of the Companies Act 2006. In some cases, they may also be able to bring an action in the name of the company (referred to as a derivative action) against the directors.
Boardroom disputes can be complex and involve both Employment Law and Company Law issues. To access the position, you should consider the Articles of Association, any Shareholder’s Agreements, board minutes, and employment contracts. By understanding where you stand with these, you may be able to resolve the situation using board control or a shareholder’s resolution. If not, careful consideration needs to be given to director’s duties, shareholder’s rights, and employment rights.
In such a case, legal advice should be taken and the earlier this can be done the greater the chance of managing the position without recourse to the Courts.
If you need to speak a specialist solicitor who deals with director/shareholder matters, please contact our expert Dispute Resolution team