Shareholder and Company Dispute Barristers

Most company disputes start in owner-managed businesses where the founders were once friends or family. One shareholder is removed as a director, dividends stop and salaries rise for those still in control, or the majority diverts an opportunity to a new company. The minority finds it still owns shares but has no say, no income and no obvious buyer. The law gives such shareholders several remedies, and the right one depends on the company's constitution, any shareholders' agreement and what the shareholder actually wants, which is usually to be bought out at a fair price.

The principal remedy is an unfair prejudice petition under section 994 of the Companies Act 2006. A member may petition where the company's affairs are being or have been conducted in a manner unfairly prejudicial to the interests of members, or a particular act or omission would be. Unfairness is judged against the articles and any shareholders' agreement, and in a quasi-partnership company also against the informal understandings on which the business was founded, such as an expectation of continued involvement in management. If the petition succeeds, the court can make any order it thinks fit under section 996, most often ordering the majority to buy the petitioner's shares at a valuation the court determines.

Other routes include a petition to wind the company up on the just and equitable ground under section 122(1)(g) of the Insolvency Act 1986, which is usually a last resort for a solvent company, and a derivative claim under Part 11 of the Companies Act 2006, where a member sues on the company's behalf for wrongs done to it, such as a director's breach of the general duties in sections 171 to 177. A derivative claim needs the court's permission to continue, and any recovery goes to the company rather than the member. Directors facing removal should note that shareholders can remove a director by ordinary resolution under section 168, with special notice, whatever the articles say.

These disputes are usually heard in the Business and Property Courts, often in the Insolvency and Companies List, and unfair prejudice petitions follow their own procedural rules. A Direct Access Barrister can advise on strategy and valuation, draft the petition, points of defence or derivative claim, and represent you at directions hearings, mediation and trial. You handle service, filing and gathering the company records. Petitions can involve substantial disclosure and expert valuation evidence, so your Barrister will advise at the start whether the matter suits Direct Access.

1. 1

   Map the Constitution

   Your Barrister reads the articles, any shareholders' agreement and the history of the company to identify the members' rights, any pre-emption or exit mechanism, and any agreed valuation method.

2. 2

   Identify the Remedy

   The conduct complained of is analysed against s.994, directors' duties and the winding-up ground, and your Barrister advises which route best achieves the commercial goal, usually an exit at fair value.

3. 3

   Exit Negotiations

   A detailed letter sets out the complaints and, often, an offer or request for a share purchase. A reasonable offer by the majority to buy at fair value can significantly weaken a later petition.

4. 4

   Petition or Claim

   If no deal is reached, your Barrister drafts the unfair prejudice petition or derivative claim. You present it at court and serve it on the company and the respondents, after which the court gives directions.

5. 5

   Disclosure and Valuation

   Documents are disclosed, witness statements exchanged and, usually, a single joint or party-appointed expert values the shares. The valuation date and any discount are often the most contested issues.

6. 6

   Mediation or Trial

   Many petitions settle at mediation once valuation evidence is in. If not, your Barrister presents the case at trial, including cross-examination of directors on the conduct alleged.