Minority shareholder protects his interests against unfair treatment
A minority shareholder who claimed he was being unfairly targeted has won his fight against having to sell his shares for only a nominal price.
The shareholder had invested in a holding company set up by himself and three others who had worked together as employees for another business.
Their relationship later broke down. The group of three attempted to buy out the minority shareholder but the parties could not agree on a price.
The group then claimed that the shareholder was no longer fulfilling the duties of a senior employee and dismissed him. They also curtailed his rights as a director, blocked his access to the companies' financial information, and breached the shareholders' agreement in other respects.
He was concerned that they might try to present the company accounts to his disadvantage when his shares were valued. He emailed the bank, attaching financial information about the company and expressing concerns about their position.
The group of three claimed that his email had breached his confidentiality duties to the company, triggering a contractual obligation to transfer his shares for just £1 each.
The High Court found in the shareholder’s favour.
It held that the group had committed serious breaches of their contractual good faith obligations under the shareholders' agreement in dismissing him as an employee. They had already decided to dismiss him before initiating the disciplinary process without clarifying and investigating their concerns with him, exploring the range of options available, and providing him with some form of warning.
They did so to advance their own sectional interests. Further, they restricted his access to company information, contrary to his role as a director, and unreasonably interfered with his decision-making role in shareholder matters. In addition, they had conducted the company's affairs in an unfairly prejudicial manner under the Companies Act 2006.
The remedy will be decided at a separate hearing.
Please contact Sing Li if you would like more information about the issues raised in this article or any aspect of company law.