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What happens when the only shareholders in a company, with equal shareholdings, fall out?

A recent case, Thomas v Dawson and another [2015] EWCA Civ 706 (9 July 2015), provides an example of what the courts will do.
In this case, T and D were the only shareholders and the only directors of a company which ran a care home.  They fell out and each took money out of the company without proper authority.  D was ordered to re-pay to the company £28,000.  Section 994 of the Companies Act 2006 allows a shareholder to bring a claim to the court for unfair prejudice.  T brought such a claim on the basis that he was running the company whilst D did nothing and yet D was preventing T from being paid a proper salary.
Section 994 claims allow the courts a wide discretion in deciding what the outcome should be but frequently courts provide that one shareholder should be forced to sell, or another shareholder should be forced to buy the other out – the courts recognising that it is in the best interests of the company for there to be a clean break.   The courts also have a wide discretion in deciding the price at which the relevant share should be sold.
In this case, even though the company had a balance sheet which was insolvent, the court directed that T should purchase D’s share at a price of £55,000, of which £28,000 should be paid to the company (recognising D’s debt to the company of £28,000) and the balance of £26,000 (being a capitalisation of the income paid to T) should be paid direct to D.  The court took into account, not just the insolvent balance sheet but recognised that the business which the company ran was a going concern provided T with accommodation and an income stream and that by buying D’s share, T would have complete control over the future of the business and company.
The original decision was appealed by T but the Court of Appeal decided that whilst the original judgment was unusual, it fell within the wide discretion granted to the courts by the Companies Act 2006.
We do not know the costs of taking this case all the way to the Court of Appeal but had the parties established a shareholders’ agreement to set out what was to happen in the event they fell out, they would certainly have saved themselves a considerable amount of money and time.
If you would like advice on a shareholders’ agreement please contact Andrew Kerr or Nina Wilson.
If it is too late for a shareholders’ agreement please contact Kevin Rogers or David Farmer.