Shareholder & Director Dispute Solicitors

Shareholder and director disputes are governed primarily by the Companies Act 2006, the company's articles of association, and any shareholders' agreement in place. Understanding the legal framework is essential to assessing your options and the likely outcome of any dispute.

The Companies Act 2006 imposes a range of duties on directors — including the duty to act in the way they consider, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole. Directors who breach these duties can face personal liability and may be required to account for any profits made or losses caused. Claims for breach of director's duties can be brought by the company itself or, in certain circumstances, by shareholders on the company's behalf (derivative claims).

Unfair Prejudice Petitions

Section 994 of the Companies Act 2006 allows a shareholder to petition the court where the affairs of the company are being conducted in a manner that is unfairly prejudicial to the interests of some or all of the members. This is the most commonly used remedy in shareholder disputes involving SMEs and owner-managed businesses.

Common examples of unfair prejudice include: exclusion of a shareholder from management of the company; diversion of business opportunities to a competing business; failure to pay dividends while paying excessive remuneration to director-shareholders; and misappropriation of company assets. The court has wide powers on an unfair prejudice petition — including ordering a buy-out of the petitioner's shares at a fair value, or making any other order it thinks fit.

Just and Equitable Winding Up

In extreme cases, a shareholder can petition the court to wind up the company on the just and equitable ground under the Insolvency Act 1986. This is typically a remedy of last resort — courts are reluctant to wind up a solvent, trading company — but the threat of a winding-up petition can be a powerful lever in negotiations. The court will consider whether the relationship of mutual trust and confidence between the shareholders has irretrievably broken down.

Shareholders' Agreements — Prevention and Protection

A well-drafted shareholders' agreement is the most effective way to prevent shareholder disputes — or to provide a clear framework for resolving them if they do arise. A shareholders' agreement can set out the rights and obligations of each shareholder, the process for making key decisions, restrictions on the transfer of shares, and the mechanism for valuing and buying out a departing shareholder's shares.

Where no shareholders' agreement exists, the company's articles of association govern the relationship between shareholders. The model articles (which apply by default under the Companies Act 2006) are designed for simple companies and may not adequately protect minority shareholders or provide a workable mechanism for resolving deadlock. We strongly recommend that all companies with more than one shareholder have a bespoke shareholders' agreement in place.

Valuing Shares in a Dispute

Where a buy-out is agreed or ordered by the court, the shares must be valued. Share valuation in the context of a dispute is a specialist area — the valuation methodology, the appropriate discount (if any) for a minority holding, and the date at which the shares should be valued can all be contentious. We work with specialist forensic accountants and share valuers to ensure that our clients' interests are properly protected in any valuation exercise.

PDA Law's commercial litigation team acts for company owners, directors and shareholders in SMEs and owner-managed businesses across Chester, Cheshire, North Wales and throughout England and Wales. We offer a confidential initial discussion to assess your position and advise on your options — with no obligation and clear costs from the outset.