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When shareholders fall out and refuse to meet...

Posted: 31st August 2011   In: Dispute Resolution

Relationships between shareholders in small companies are often tense, but what happens if they refuse allow meetings to take place that could determine the future of the business?

The issue arose in a case involving a taxi firm that had two shareholders who were also both directors.

The minority shareholder played no active part in the business but her husband worked as the accounts manager.

The majority shareholder discovered that the accounts manager was withdrawing money on a monthly basis without authorisation. He challenged him about this and as a result, their relationship quickly deteriorated.

The majority shareholder then decided to call an extraordinary general meeting with a view to ratifying the dismissal of the accounts manager, and to remove the minority shareholder as a director.

However, the minority shareholder did not respond to enquiries about whether she would attend the meeting. If she did not attend, the meeting would be inquorate and so ineffective.

Faced with this stalemate, the majority shareholder applied for an order under the Companies Act 2006 allowing the meeting to be held and considered valid despite being inquorate.

The High Court granted the application on the basis that the two shareholders were at deadlock. Trust had broken down and the current state of affairs was unsustainable.

The meeting needed to take place for the sake of the viable governance of the company.

If this resulted in decisions that infringed the rights of the minority shareholder, she could take further legal action to protect her interests.

Please contact us if you would like more information about the issues raised in this article or any aspect of company law.