Claims by shareholders or the company

In the realm of corporate governance, the potential for claims by shareholders or the company against directors remains a significant facet of legal and ethical considerations.

Shareholders, who hold a vested interest in the company’s performance, may pursue claims against directors if they perceive breaches of fiduciary duties or mismanagement that could harm their investments.

Similarly, the company itself might bring claims against directors for actions that have caused financial harm or violated their responsibilities.

These claims can encompass a range of issues, from conflicts of interest and negligence to intentional misconduct. Any shareholder has the right to initiate a claim, whether for a current or anticipated action or oversight that entails negligence, default, violation of duty, or breach of trust committed by a director.

It’s important to note that establishing concrete financial harm experienced by the company is not a prerequisite in such cases

Removal as shareholder / director at Companies House

This represents one of the more frequent types of claims made by shareholders, an occurrence that is more commonplace than one might initially assume.

The alteration of member details, whether it involves the removal of a shareholder or the dismissal of a director, necessitates strict adherence to a range of statutory provisions (for directors) or the mutual consent for a shareholder’s shares to be acquired.

However, it’s important to acknowledge that Companies House lacks stringent oversight. Consequently, if an individual possesses the requisite codes granting them online access, altering such records can be achieved with relative ease.

Although this modification is limited to the public register in a technical sense, its implications are significant as it effectively restricts external entities—such as banks and customers—from engaging with the ousted party.

In such cases, seeking redress through legal channels might be the sole recourse, since Companies House offers only minimal support when faced with such intricate scenarios.

Minority interests / control of finances

Frequently, we observe individuals with smaller shareholdings or limited influence over the company’s operations expressing considerable dissatisfaction due to the significant shortfall in information extended to them as shareholders.

This dearth of transparency, coupled with a pronounced lack of accountability, leaves them with minimal authority over the company’s affairs.

In such instances, shareholder claims emerge frequently due to a variety of reasons, including:

1. The absence of dividend disbursement.
2. Instances where a dominant director awards themselves substantial remuneration.
3. The company’s engagement in diverse business activities.
4. The use of preferred suppliers, potentially at a higher cost, linked to the controlling director.
5. The controlling director’s establishment of competing enterprises, gradually absorbing the clientele and suppliers of the original company.

It’s worth noting that legislative measures do offer safeguards for minority shareholders, although the same cannot be said for minority directors who find themselves outvoted on a board.

Acting in opposition to the interests of a minority shareholder constitutes a violation of a director’s obligations, underlining the legal imperative to act in the best interests of all stakeholders

Unfair prejudice

Unfair prejudice denotes the harm incurred by a shareholding when any of the aforementioned actions, or any form of detrimental conduct, occurs. In situations where minority shareholders experience such unfair prejudice, they possess the option to present an unfair prejudice petition before the court, with the objective of obtaining restitution for the inflicted prejudice and the ensuing losses.

Navigating such legal proceedings can be intricate and multifaceted, potentially culminating in a court-issued directive necessitating one party’s acquisition by the other. Alternatively, it might entail a scenario where either one party or the company itself procures the shares held by the opposing party.

Winding up – just and equitable

In the most adverse situation, especially when viable alternatives are scarce, the court may grant permission for a winding-up of the company that is deemed just and equitable, allowing the involved parties to pursue separate trajectories.

Opting for a solvent winding-up is generally regarded less favorably. The courts, as well as the government, tend to discourage the winding-up of a profitable business that one party intends to continue operating. This approach is not aligned with their preferences.

Claim for breach of fiduciary duties / derivative claims

A breach of their fiduciary duties could render a director accountable to the company.

In instances of insolvency, this type of claim might be initiated by the company’s designated liquidator. Conversely, when the company remains operational and financially viable, a director’s exposure to such risk is typically shielded, particularly if there isn’t a majority consensus on the board.

Nevertheless, the Companies Act 2006 incorporates a statutory framework that empowers a shareholder to compel the company to take action against a culpable director (or pursue any unresolved matter shunned by the entire board). This particular mechanism is commonly referred to as a derivative claim.

Conclusion

In the complex realm of corporate governance, the capacity for shareholders to bring forth claims against directors stands as a vital cornerstone of accountability and oversight.

These claims not only act as a safeguard for shareholders’ investments but also uphold the principles of transparency and ethical stewardship within companies. Whether originating from breaches of fiduciary duties, mismanagement, or actions detrimental to shareholder interests, these claims play a pivotal role in ensuring directors’ continued accountability for their decisions and actions.

As shareholders exercise their rights to seek redress, they contribute to the ongoing evolution of corporate practices that strive for fairness, integrity, and the maximisation of value for all stakeholders involved.

Worried about shareholders bring a claim against you, simply compel the online enquiry form for assistance.