Shareholder Dispute Lawyers

Disputes between shareholders can have a major impact on the operation of a company and take a toll on the individuals involved. Our team of expert dispute lawyers will provide clear and commercial advice to guide you and your business with the aim of achieving a swift and efficient resolution. 

There are a number of options available to shareholders when a dispute arises. Our litigation solicitors use a variety of dispute resolution methods (including litigation, expert determination, mediation and negotiation), and engage trusted and reliable valuation and forensic accountancy experts, in order to provide a tailored strategy and the best outcome for our clients. Our disputes team is experienced and highly regarded in this field. 

How our shareholder dispute lawyers can help you

If a dispute cannot be resolved internally, it may become necessary for shareholders to take legal action to protect the value of their shareholding or the company itself. As expert shareholder dispute solicitors we can help you with:

Unfair prejudice petitions

Shareholders may present a petition to court for relief where the affairs of the company are being conducted in a manner that is ‘unfairly prejudicial’ to the shareholder’s interests.

Examples of unfair prejudice include:

• exclusion from management in circumstances where it was agreed or implied that the member had a right to participate in management for example where there is an equal shareholder dispute
• dividends are not paid because all distributable profits have been exhausted by the drawing of excess remuneration
• serious and repeated mismanagement which results in significant financial loss to the company
• shares are allotted to dilute a minority member’s interests

The court will not be interested in vague or trivial complaints (such as a general allegation that the directors are managing the business badly); there needs to be specific unfair conduct that damages a shareholder’s position or the value of their shareholding.

If an unfair prejudice petition is successful, the court has a wide discretion to make whatever order it considers appropriate. Relief typically includes a purchase order requiring the wrongdoer to purchase the innocent’s shareholding.

Winding up petitions

Shareholders may petition for the winding up of the company on a ‘just and equitable’ basis. 

Example grounds for a winding up petition include:

• serious mismanagement leading to a justifiable loss of confidence by the shareholders, eg directors cause the company to perpetuate fraud
• complete breakdown in relations between the parties to the extent that decisions about the company’s business cannot be reached. This is known as ‘deadlock’
• the original purposes of the company have been fully achieved or may no longer be pursued

If a winding up order is made, an insolvency practitioner is likely to be appointed and the assets of the company collected in and distributed to shareholders after the payment of fees and debts.

Claims against directors 

Directors owe duties to the company, not the shareholders. This means that it is for the company, not the shareholders, to enforce directors’ duties or else take action against rogue directors. However, shareholders are able to bring a claim on the company’s behalf known as a ‘derivative action’. 

Shareholders may bring a derivative action in respect of an actual or proposed act or omission involving negligence, default, breach of duty or breach of trust by a director of the company. 

Potential grounds for a derivative claim include:

• a director is heavily influenced by their appointing shareholder meaning they do not exercise independent judgement at board meetings;
• a director proposes and votes in favour of the company trading with a third party, without disclosing their interest in that third party;
• a director receives undisclosed commission payments from a third party in exchange for voting or acting in a particular way or
• company disputes between directors/shareholders.

Depending on the breach in question, the court may order the director to pay damages or account for profits, set aside a transaction or restore company property held by the director. A breach of duty may also be grounds for the termination of an executive director’s service contract, or for disqualification as a director under the Company Directors Disqualification Act 1986. 

In reality, derivative actions are rarely brought by shareholders because, even if the claim is successful, the shareholder does not benefit directly (relief ordered by the court will be awarded to the company). Further, if the claim is unsuccessful, there is a risk the shareholders will be ordered to pay the director’s costs of the litigation (which may or may not have been funded by the company). These types of director disputes are not common but may be rolled out as part of a strategy to enforce your rights.

We are recognised as market leading shareholder dispute solicitors and can help shareholder dispute resolution through the courts, arbitration, negotiation and alternative dispute resolution.