October 29th, 2012 / Insight posted in

Minority investor seeks redress

NT writes: I own 20% of the shares of a building services company, which currently has a turnover of £1.2m and annual profits before tax of around £150,000. I play no active role in the management of the business. However, I recently discovered that the majority shareholder has, without my knowledge or consent, moved the entire business, assets and goodwill of the company to a newly created company with a similar trading name, splitting the shareholding equally between himself and a new business partner.

He has advised me that the company in which I hold the shares is now dormant and that I will not be granted shares in the new company. In addition, the original company declared a dividend in the accounts for the last financial year which I have not yet received. As a minority shareholder, do I have any rights to protect my position and what steps should I take?

Assuming you did not sign a shareholder’s agreement with your former business partner, you should still have some options, writes Jon Sutcliffe, partner at Kingston Smith LLP.

As the business, assets and goodwill of the company have been moved to a new company, a derivative action may be brought. A derivative action is available for a breach of statutory duty by the directors. It may be brought where there is negligence, default, breach of duty or breach of trust and includes breach of duty to exercise reasonable care, skill and diligence and the duty to promote the success of the company.

Under the Companies Act 2006, the onus is on the shareholder making the application to provide sufficient evidence to support the claim; otherwise the court may dismiss it.

With regard to the unpaid dividend, shareholders have a number of statutory rights in relation to the prevention of ultra vires dealings by directors. The Act provides specific statutory protection to shareholders against “unfair prejudice”. A shareholder may petition the court for an order protecting him from unfair prejudice on the grounds that the company’s affairs are being or have been conducted in a manner that is unfairly prejudicial to the interests of some of its members.

The remedy that is most often sought under this petition is that the other shareholders buy out their shares for a fair value. This remedy could deal with the loss to you as a result of both the dividend and the transfer of trade to the new company.