Minority Shareholders May Lack Power – But They Do Have Rights!

29/01/2019


Minority shareholders may have limited influence, but they do have rights and, when their interests are unfairly prejudiced by the conduct of the majority, the courts have a full range of powers to ensure that justice prevails. The point was powerfully made by a case in which a businessman’s widow was unfairly treated by his surviving brothers.

The case concerned a family catering business which, from very small beginnings, prospered to the point where it turned over more than £20 million annually. The company comprised seven shares which, following the death of the family patriarch, were owned by three brothers and their mother. Following the death of one brother, his shareholding passed directly to his widow and young children equally, the latter bequest being contingent on the children attaining the age of 25.

Lawyers on behalf of the widow and the trustee of the deceased brother’s will lodged a High Court petition under Section 994 of the Companies Act 2006. It was alleged that the surviving brothers and their mother, the company’s sole directors, had managed the company’s affairs in such a manner as to unfairly prejudice the widow and the deceased brother’s estate, as minority shareholders.

In upholding the petition, the Court found that all three directors had, for a number of years, drawn excessive remuneration from the company. The surviving brothers had, without formal authorisation, also harmed the company’s interests by making liberal use of their director’s loan accounts to fund personal expenditure. Although the company had sufficient cash reserves to pay dividends, none had for several years been voted to shareholders, including the minority shareholders.

The prejudicial conduct had led to the total exclusion of the widow and the deceased brother’s estate from any share of the company’s profits. The Court found that the surviving brothers, who were in active control of the company, were primarily to blame for that conduct, although the mother also bore some responsibility in failing to ameliorate their behaviour. The Court noted that a person who cannot perform the onerous duties of a director should not hold such an office.

The Court directed the surviving brothers to buy out the minority shareholders at a fair price. Although that price had yet to be determined, the Court ruled that it would be wrong to discount the sum payable to take account of the reduced value of minority shareholdings. Such a discount would in the circumstances present an undeserved windfall to the surviving brothers.

McCallum-Toppin & Anr v  McCallum-Toppin & Ors. Case Number: Cr-2016-007340

Contact us for more information


Share this article