Improved Protection for Minority Shareholders

Minority shareholders often only realise how little influence they have over the conduct of a company when they become aware that actions are being taken of which they disapprove and they try to do something about it.

The ‘long stop’ position in this situation is to bring an action under S459 of the Companies Act, which contains provisions allowing minority shareholders to seek redress if actions are taken which prejudice their interests. Normally this results in an order that the majority shareholders buy out the minority shareholders at a fair price.

Recently, the Court of Appeal dealt with a case in which the S459 action was brought against a company in respect of actions which strictly related to a subsidiary of the company (or possibly to individual shareholders). There were allegations of misappropriation of the company’s assets by one of the director/shareholders. One of the main points at issue was whether the affairs of a subsidiary could be regarded as the affairs of its parent company for the purposes of claiming relief under S459.

The court ruled that this was the case where the parent and subsidiary company have directors in common.

Even more important in practical terms was the finding of the court that the shareholders could bring the action for the prejudice done to them, rather than the company itself bringing an action against the director for the misappropriation.