If you feel that your rights as a shareholder are being trampled upon, you are very far from powerless and should contact a solicitor without delay. In one case, the High Court came to the aid of an investor in a travel company the directors of which denuded it of cash reserves at his expense.
When the company was first incorporated, it had 30,000 ordinary shares, 10,000 of which were allotted to the investor, who had put £10,000 into the business. Each share had a nominal value of £1 and carried identical rights in terms of voting, dividends and distributions. The remaining 20,000 shares were held equally by the company’s two directors.
The directors subsequently convened a general meeting at which they purported to pass a resolution by which the company’s share capital was reduced from £30,000 to £100. They granted themselves 50 shares each but none to the investor. In subsequent years, they paid themselves dividends and generous salaries, whilst the investor received nothing.
After the investor launched proceedings, the Court upheld his complaint that the directors had conducted the company’s affairs in a manner that was unfairly prejudicial to his interests as a shareholder, contrary to Section 994 of the Companies Act 2006.
The Court noted that the investor had been given no notice of the general meeting, which he did not attend. The resolution had in any event not been passed by a 75 per cent majority of shareholders, as required by Section 283 of the Act, and was thus void and of no effect. The original position, whereby the investor owned one third of the company’s shares, therefore remained unchanged.
The investor had clearly suffered unfair prejudice in that he had been denied his rightful one-third share of dividends that totalled £333,000. The inflated salaries that the directors paid themselves also served to strip the company of its cash reserves. They were in serial breach of the fiduciary duties they owed as directors under Sections 171-175 of the Act.
They failed either to act within the company’s constitution or to promote its success, allowing a conflict of interest to exist between their own personal financial positions and the company’s wellbeing. They were ordered to pay the investor £111,000, that sum representing his one-third dividends entitlement. The Court also directed them to pay £75,000 in damages to the company, plus the investor’s legal costs.