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Fair Treatment of Minority Shareholders – High Court Ruling

Minority shareholders may not have control of companies but they are entitled to fair treatment and to have a role in decision making. The High Court made that point in ordering that a businessman who was excluded from his managerial position in a company must be bought out of his 49 per cent shareholding for over £300,000.

Half of the shares in the company were owned by a colleague with whom the businessman had worked for many years. The remaining 1 per cent was owned by the colleague’s wife. However the Court found that the two men had reached an informal agreement that they would run the company as an equal quasi-partnership.

After they fell out bitterly in respect of business strategy, the wife took over day-to-day management of the company and the businessman was excluded from any participation and ultimately removed as a director. In those circumstances, he launched proceedings under Section 994 of the Companies Act 2006, alleging that the company’s affairs had been conducted in a manner that was unfairly prejudicial to his interests as a minority shareholder.

In upholding his claim, the Court found that it had been unfair to remove him as a director and to exclude him from any influence in the company’s management. He had also been unfairly denied access to financial and management information and payments had been made by the company that had prejudiced his interests. The Court found that he was entitled to 50 per cent of the company’s value on the date of his exclusion and that he should be bought out for a total of £309,000.