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What happens when there is a shareholder dispute?

A recent case has not established a new law for shareholder disputes, but it has provided a good review of what the current law is. There has been a long running shareholder dispute (Apex Global v Fi Call) in which judgement was given this month (November 2015) in the form of a claim to close the company.
Under section 994 of the Companies Act 2006 (CA 2006) a shareholder can apply to the court if they consider that the company is being run in a way which is unfairly prejudicial to that shareholder. The court then has a wide discretion to decide what to do in the event that the court agrees with the shareholder (including closing the company).
Under section 122(1)(g) of the Insolvency Act 1986 (IA 1986) a court has the power to wind up a company if it considers that it is just and equitable for it to do so.
The court will look at the business realities of the items complained of but they must relate to the shareholder’s interest in the company and anything that relates to the shareholder but the company are not relevant. The prejudice need not be financial but it must affect them adversely in their capacity as shareholder.  What may not be unfair between commercial entities may be unfair between family members.
Section 994 of the CA 2006 grants the court wide discretion in how to resolve the shareholder dispute, whereas section 122(1)(g) of the IA 1986 is the section of last resort as it leads to the closing of the company.   The court needs to consider whether there is a viable alternative to closing the company and also whether the disaffected shareholder is bringing a claim under section 122(1)(g) out of a desire not to gain justice but to punish.  The judge noted that both claims could be brought at the same time but not necessarily in the same set of proceedings.
On the facts of this case the judge proceeded with the winding up of the company referencing the breakdown in trust and confidence between the joint venture company shareholders, the fact that the company had been unable to trade and had destroyed any goodwill attached to the company and that the business purpose, for which it had been formed, not longer existed.
If you want to avoid the expense of litigation then it is best to plan for what should happen if a shareholder dispute arises by having a shareholders’ agreement.   Please contact Nina Wilson for further information.
If it is too late and you need advice surrounding shareholder disputes, please contact Kevin Rogers.