Minority Shareholder Rights & Remedies in Shareholder Disputes
In a previous article, we commented on the Court of Appeal decision in Saxon Woods Investments Ltd v Costa [2025], which clarified and reinforced important aspects of minority shareholder rights and confirmed the protection available for minority shareholders against the dishonest actions of directors.
Minority shareholders are often involved in disputes with majority shareholders where they feel that their rights are being unfairly compromised. Where such a situation arises, there are remedies available to them, arising from both statute and common law, which seek to prevent abuse of their rights and provide equitable remedies by way of redress.
Frequently, a Shareholders’ Agreement will specify the consultation or information rights available to shareholders, or to each class of shareholder where applicable, and prescribe the procedures to be followed in the event of dispute.
However, where no such guidance is available, minority shareholders in particular should be aware of, and understand the remedies available to them so that they can take the most appropriate course of action in the circumstances.
Stuart Southall of KANGS comments upon the various remedies available to minority shareholders in the event of a dispute arising.
When Might a Shareholder Dispute Arise?
Whilst the potential areas for dispute are extensive, the following regularly arise:
- withholding payments of dividends for improper purposes,
- disagreements over interpretation of key documents such as the company’s Memorandum and Articles of Association and trading contracts,
- issuing shares at an undervalue, thereby diluting value,
- unfair exclusion from management,
- conflicts of interest,
- denial of proper access to information.
Potential Remedies for Shareholder Disputes
Alternative Dispute Resolution
As a matter of course, Alternative Dispute Resolution (ADR) should receive early consideration, even if it is subsequently considered inappropriate in the prevailing circumstances. The Civil Procedure Rules rule.1, provide that civil litigation must have regard to the ‘overriding objective’ aiming to ensure all cases are dealt with fairly, reasonably and at a proportionate cost.
If this objective is ignored, there may be serious adverse costs implications at a later date.
ADR provides a variety of procedures seeking to resolve a dispute informally and efficiently in a cost -effective manner.
Unfair Prejudice Petitions
The Companies Act 2006 (‘the Act’), at s.994, provides that:
A member of a company may apply to the Court by petition for an Order on the ground that:
- the company’s affairs are being or have been conducted in a manner that is unfairly prejudicial to the interest of members generally or of some part of its members, including himself or
- that an actual or proposed act or omission of the company, including an act or omission on its behalf, is or would be so prejudicial.
Upon receipt of an unfair prejudice petition, a Court has a number of options and may, if considered justifiable:
- order the majority to purchase the shares owned by the minority at a fair value,
- amend the company’s constitutional documents,
- regulate the company’s affairs,
- in extreme cases make a Winding Up Order on just and equitable grounds.
Derivative claims
A derivative claim enables a shareholder to bring proceedings on behalf of the company for wrongs committed against it, such as breaches of a director’s duties to promote the success of the company under s.172 of the Act or to avoid a conflict of interest under s.175 of the Act.
S.260(3) of the Act states that:
- a derivative claim may be brought only in respect of a cause of action arising from an actual or proposed act or omission involving negligence, default, breach of duty or breach of trust by a director of the company.
- in addition, the cause of action may also be against another person such as a former director, a ‘shadow director’ or both.
In such proceedings a Court may:
- issue an injunction in order to prevent further, or prospective breaches,
- award damages to rectify any loss suffered by the company,
- make an Order for restitution by the defaulting director,
- set aside a specific transaction,
- Order the restoration of company property.
Just and equitable winding up
The Insolvency Act 1986 states:
S.122(1)(g) that:
A company may be wound up by the Court if it is of the opinion that it is just and equitable that the company should be wound up.
There is no prescribed definition of just and equitable and the Court will be guided entirely by the prevailing facts and circumstances presented to it.
The most common reasons presented to the Court when seeking the winding up of a company are those scheduled above as potential causes for a shareholder dispute.
However, S.125 (2) states that:
If the petition is presented by members of the company as contributories on the ground that it is just and equitable that the company should be wound up, the court, if it is of opinion that:
- the petitioners are entitled to relief either by winding up the company or by some other means, and
- in the absence of any other remedy, it would be just and equitable that the company should be wound up,
shall make a winding-up order.
This does not apply if the court is also of the opinion that some other remedy is available to the petitioners and that they are acting unreasonably in seeking to have the company wound up instead of pursuing that other remedy.
Seeking to wind-up a company in the course of a shareholder dispute by way of such a petition, should be considered a remedy of last resort, after all other alternatives have been considered, and where possible, implemented.
As stated above, regard must be given to the incurrence of unnecessary costs as required by the ‘overriding objective’ under the CPR. Disputes between shareholders frequently involve personality clashes between individuals which should not be allowed to prevent any realistic settlement being achieved.
How Can We Assist You?
Becoming involved in any shareholder dispute can be extremely stressful and costly. However, in some circumstances court proceedings may become inevitable. Accordingly, it is essential that any possible opportunity for an agreed settlement should be explored from the outset, with the support of experienced legal advice and guidance.
The team at KANGS has extensive experience gained from handling complex shareholder and commercial disputes, of every conceivable nature.
Our commercial dispute lawyers understand the impact a shareholder dispute can have on a business and always seeks to achieve the most satisfactory outcome available as economically and expeditiously as possible.
We also have lawyers with expertise in Alternative Dispute Resolution (ADR). We are able to provide suitably equipped offices to conduct mediations with both private rooms and a ‘joint room’ for opening statements and ongoing discussions between the parties.
If you require assistance, please do not hesitate to contact us using the details below.
Tel: 0333 370 4333
Email: info@kangssolicitors.co.uk
We provide initial no obligation discussion at our three offices in London, Birmingham, and Manchester. Alternatively, discussions can be held through video conferencing or telephone.
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