Minority Shareholders.doc

Minority Shareholders Basic: the protection of minority shareholders’ interests in England and Wales are safeguarded safeguarded by a small selection of remedies for either their own personal losses, or loss losses es to the the comp compan any y (e.g (e.g.. dive divert rtin ing g comp compan any y cont contra ract cts s to the the dir directo ectors rs themselves). The former is the most common and available under s! of "#$%%&, a petition for 'unfairly preudicial conduct’ (*"), or by a court order re+uesting the winding up of the company under *art - of the nsolvency (#) /&. The latter is protected by the derivative claim, codi0ed and re0ned by ss$& to $&1 "#$%%&. 2owever, the shifting boundaries of these remedies illustrate illustrate the courts’ dilemma in balancin balancing g the competing competing interests interests of minority minority sharehold shareholders ers and the company’ company’s s rights to manage itself without court interference. interference.  There are several methods by which the law protects protects the members (3ir (3irect ectors ors)) of a compa company ny.. 2oweve 2owever, r, probl problem em arises arises wher where e the compan company y or the memb member ers s are are wron wronge ged d by the the acts acts or omis omissi sion ons s of the the dir directo ectors rs or mao maori rity ty shareholders. n such case, the persons who cause the harm are also the persons who have standing to obtain redress. Without the law’s aid, members especially minor minority ity shar shareho eholde lders rs,, who who susta sustain in loss loss due to the action actions s of the direct directors ors or maority shareholders would be left without a remedy.  Therefore,  Therefore, the concept of protection protection of minority shareholder shareholder concerns concerns how the rights and claims considered in relation to one another and placing the rights and and clai claim m in cont conte4 e4t. t. The The rule rule that that the the comp compan any y is the the prop proper er clai claima mant nt in proceeding proceeding in which a wrong is alleged to have done to a company and limits of that rule. "ircumstances "ircumstances in which sharehold shareholders ers may commence and will be permitted permitted to continue a 3erivate "laim. *ersonal 5ights: of a shareholder to sue in his own name for legal wrongs done to him in a personal capacity, to ma6e good losses he is su7ered, incl includ udin ing, g, pote potent ntia iali lity ty re8ec e8ecti tive ve loss losses es.. The The law law us uses es a numb number er of lega legall mechanis mechanisms9in ms9instru strument ment to protect protect companies companies from from poor managemen managementt and self self interes interested ted action action by those those in contro control, l, includin including g of general general and speci0c directors directors duties. f the inade+uate behaviour of director causes losses to the company, the company can sue to recover losses cause by breaches of the duty.  The company and the company alone have the right to sue for breach of director’s duties because directors’ duties are owed to the company. 3i;culties aris arise e wher where e wron wrongd gdoe oers rs are are dir directo ectors rs they they pote potent ntia iall e4is e4istt for for wron wrongs gs to be overloo6ed and no remedies pursued by the company because it is the wrongdoer who are managing the company. (When the directors are in control of the company, the company lac6 to bring a claim because the directors are the member of the company).  The di;culty may be overcome by the shareholders shareholders becoming the decision ma6ing organ of the company for the purposes of ensuring legal action is brought against the directors. The problem is more di;cult to overcome, however, when wrongdoer directors also own a maority of a company’s share. (!). "uriously, there is no similar provision in s% re+uiring the votes of the director to be discounted on a resolution to approve a substantial asset transaction which leaves the matter moot and the answer to +uestion  dependent upon the approach the court ta6es to statutory interpretation. # literal approach would suggest that all shareholders can vote, as the section does not state otherwise, whereas s$> does state otherwise. %estion : de#eat a proposed resol%tion to s%e the directors to reco'er the land7 # resolution to sue the directors, if defeated, could be characterised as an indirect decision of the company to ratify a breach of duty, thereby bringing it within s$> which re+uires the directors’ votes to be disregarded. t is surprising that the answer to these +uestions is not clearcut. %estion +: ha'e any leal action commenced by the minority shareholder stopped beca%se he is not the proper claimant7 *rovided the minority shareholder brings the legal action as a claim under s$&%, a statutory derivative claim, the action will not be stooped based on him not being the proper claimant. 2e will, however, need to secure the permission of the court to continue the claim.

The Ma5ority R%le  The principle of the maority rule is a general and sensible rule, which is a fact of  business life. # company is bound by the decisions of the maority that applies to decisions in pursuing business activities. Therefore, the practice of proper maority rule sometimes speci0cally leads to a special maladministration purpose i.e. not to pursue corporate wrongdoers specially directors. The fact that the members of a company controlling more than half of votes at a meeting do not owe any duty infers that they have +uite substantial power and can vote for their own advantage. FG Even the wellrecogniHed restrictions based on bona 0de and proper purpose principles goes unrestrained allowing maority rule to operate lawfully. Bor instance, even the 0duciary duties of directors does not prohibit them acting in their own sel0sh interest. F$G )(b), as it was inferred that some directors would not see6 to continue the claim. @oreover, it was found that the board too6 advise on technical matters from eminent counsels before acting. 2ence, the permission to continue the claim was refused. &ranbar (oldins ;td ' Patel 200* certain e4tent to which director acting in a manner conforming to