The Law Relating to Private Companies – Shareholder Remedies
General minority protection remedies
• Some mechanisms for protecting minorities:
◦ Special resolution (requires 75% of votes in favour: s283 CA 286)
◦ Requirement that shareholders vote in good faith in interests of company as a
whole (i.e. all shareholders) on resolution to change constitution/class rights and
on ratification decisions
◦ Shareholder agreements
◦ Personal rights under s33 contract
◦ Weighted voting rights (Bushell v Faith)
◦ Entrenched articles (s22 CA 2006)
But also specific minority remedies:
• derivative action
• unfair prejudice remedy
• just and equitable winding up (s122(g) IA, if owed money for example)
Or all courses of action open to unhappy minority shareholders
• sue directors directly: if a Peskin v Anderson relationship exists
• enforce articles: subject to qua member rights in Hickman v Kent and the internal
irregularity rule in MacDougall v Gardiner
• removal of directors: s168 with OR
• reserve power: art 4 MAPA requires SR though
• sell shares shares (but unlikely will find a ready market for minority shareholding, may
lose money)
Personal actions
• Pender v Lushington - chairman of GM wrongfully refused to recognise votes of nominee
shareholders. Held infringed personal rights of shareholders, could bring personal
action.
• Cinematic Finance v Ryder 2010: CA 2006 reforms have not abolished ‘proper claimant’
principle from Foss v Harbottle (when proper claimant is shareholder) so individual
claims still possible
Derivative Action s260-236 CA 2006
Personal or corporate action? (Foss v Harbottle)
• If a shareholder’s qua member rights have been breached, they can bring a personal
action for breach of s33.
• However, if the wrong is done to the company instead, the company is the ‘proper
plaintiff’ and so it is the company which must sue. This principle is known as ‘The Rule in
Foss v Harbottle’, but it is also a wider principle of law that only the person wronged or
General minority protection remedies
• Some mechanisms for protecting minorities:
◦ Special resolution (requires 75% of votes in favour: s283 CA 286)
◦ Requirement that shareholders vote in good faith in interests of company as a
whole (i.e. all shareholders) on resolution to change constitution/class rights and
on ratification decisions
◦ Shareholder agreements
◦ Personal rights under s33 contract
◦ Weighted voting rights (Bushell v Faith)
◦ Entrenched articles (s22 CA 2006)
But also specific minority remedies:
• derivative action
• unfair prejudice remedy
• just and equitable winding up (s122(g) IA, if owed money for example)
Or all courses of action open to unhappy minority shareholders
• sue directors directly: if a Peskin v Anderson relationship exists
• enforce articles: subject to qua member rights in Hickman v Kent and the internal
irregularity rule in MacDougall v Gardiner
• removal of directors: s168 with OR
• reserve power: art 4 MAPA requires SR though
• sell shares shares (but unlikely will find a ready market for minority shareholding, may
lose money)
Personal actions
• Pender v Lushington - chairman of GM wrongfully refused to recognise votes of nominee
shareholders. Held infringed personal rights of shareholders, could bring personal
action.
• Cinematic Finance v Ryder 2010: CA 2006 reforms have not abolished ‘proper claimant’
principle from Foss v Harbottle (when proper claimant is shareholder) so individual
claims still possible
Derivative Action s260-236 CA 2006
Personal or corporate action? (Foss v Harbottle)
• If a shareholder’s qua member rights have been breached, they can bring a personal
action for breach of s33.
• However, if the wrong is done to the company instead, the company is the ‘proper
plaintiff’ and so it is the company which must sue. This principle is known as ‘The Rule in
Foss v Harbottle’, but it is also a wider principle of law that only the person wronged or
