Minority Shareholder Rights: Legal Remedies for Oppression

Minority Shareholder Protection and Remedies

Every company has majority and minority shareholders. Very often, the majority shareholders will possess greater authority, leaving the minority with little choice but to acquiesce. In practice, if a minority shareholder is oppressed, several legal remedies are available. Section 994 addresses personal claims, while Section 260 pertains to corporate claims. Section 122(1)(g) is considered a last resort option. There are significant differences between these remedies.

Section 994 and 996: Unfair Prejudice Claims

Section 994(1) of the Companies Act 2006 is crucial in defining unfair prejudice. A key case illustrating this is O'Neill v Phillips.

Case Study: O'Neill v Phillips

• Facts: Mr. Phillips owned Pectel Ltd., a company specialising in stripping asbestos from buildings.
• In May 1985, Mr. Phillips had an an informal chat with Mr. O'Neill, expressing a hope that Mr. O'Neill could one day take over the entire management and subsequently draw 50% of the company's profits.
• Outcome: In this case, there was no unfair prejudice claim (UPC) due to a change in circumstances.

Another relevant case is Re Ghylbeck v Driving Range Ltd., where a minority shareholder was allowed an unfair prejudice claim (UPC) due to exclusion from management.

Remedies Under Section 996

Remedies are available under Section 996. Section 996(1) allows the court to grant any remedy it deems fit. Section 996(2) offers very specific remedies, including:

• Injunctions
• The sale of shares
• Damages
• Reinstatement

While Section 996(2) provides specific remedies, in practice, the court often directs the minority shareholder to sell their shares due to the breakdown of the relationship.

Personal Claims and Lord Wedderburn's Definition

A Section 994 claim is a personal claim, as defined by Lord Wedderburn. Among the rights considered personal claims are:

• Voting rights
• Share transfer rights
• Class rights
• Pre-emption rights
• The right to be a registered shareholder
• Declared dividends
• The right to have directors appointed

Other matters will be at the judge's discretion.

Derivative Claims: The Rule in Foss v Harbottle

A derivative claim allows a shareholder to bring an action on behalf of the company itself. The foundational case for this is Foss v Harbottle.

Case Study: Foss v Harbottle

• Facts: Two shareholders commenced legal action against the promoters and directors of the company, alleging that they had misapplied company assets and improperly mortgaged company property.
• Outcome: The court rejected the two shareholders' claim, holding that a breach of duty by the company's directors was a wrong done to the company itself, which only the company could sue for. This established the "proper plaintiff rule."