Shareholders — rights & protection (incl. unfair prejudice, derivative claims)

BLP.06 — Shareholders: Rights & Protection

Core shareholder rights (CA 2006)

• Vote at general meetings; dividends if declared; return of capital on winding up. Rights attach to the share class, set by the articles.
• Resolution thresholds: ordinary = >50%; special = ≥75%. Some rights are statutory floors that articles can't reduce.
• Minority leverage points: >25% can block any special resolution; ≥5% can require directors to call a general meeting (s.303), circulate a written statement (s.314); ≥10% can demand a poll (s.321) and (for private cos) prevent deemed re-election/short-notice issues. (Note: s.314 also lets members bearing the expense circulate a statement of up to 1,000 words.)

The three protection routes

1. Unfair prejudice petition — s.994 CA 2006. Conduct of the company's affairs is/has been unfairly prejudicial to members generally or some part (incl. petitioner). Test (O'Neill v Phillips): breach of the terms on which it was agreed affairs would be conducted — usually breach of the articles or a shareholders' agreement, OR breach of an equitable understanding (esp. quasi-partnership: mutual trust, expectation of management participation). Remedy is discretionary; the usual order is a share purchase (s.996), normally at a pro-rata (non-discounted) value in a quasi-partnership.
2. Derivative claim — ss.260–264 CA 2006 (Part 11, Ch.1; ss.265–269 are the Scottish equivalent). A member sues in the company's name for a wrong done to the company (negligence, default, breach of duty/trust by a director). Two-stage permission of the court required; permission must be refused if a person acting under s.172 wouldn't pursue it, or if the act was authorised before/ratified after by the company.
3. Just and equitable winding up — s.122(1)(g) IA 1986. Last resort; Ebrahimi v Westbourne Galleries (breakdown of quasi-partnership). Court may refuse relief if a s.994 buy-out is available and the petitioner unreasonably refuses it.

Leading cases

O'Neill v Phillips (unfair prejudice test); Ebrahimi v Westbourne Galleries (quasi-partnership / just & equitable); Foss v Harbottle (proper claimant = the company — the rule derivative claims sidestep).

Common SQE1 traps

• Personal vs corporate wrong. Loss reflective of the company's loss → derivative claim (company's wrong); harm to the member as a member → s.994. Don't mix them.
• Fair value ≠ exclusion. Loss of dividend/share value alone usually isn't unfair prejudice; a fair offer to buy out at proper value can defeat a petition (O'Neill).
• Ratification. A ratifiable wrong can sink a derivative claim; interested members' votes are disregarded (s.239).
• Articles entrench rights — variation of class rights needs the s.630 procedure (special resolution / written consent of 75% in nominal value of the class).