Shareholder Disputes Circular

Five quick tipsIn this

Five quick tipsIn this section we draw together certain key learning points from the cases consideredabove and condense them into five quick tips.1Think carefully about any shareholders’ agreement and articles ofassociationLegitimate expectations can sometimes override written agreements.Nevertheless, clear and comprehensive written agreements remain the bestway of recording any agreement as to a company’s management. It is alsoimportant for Boards to accurately record the decisions they take and thereasons for these. This can easily be forgotten but companies with goodrecords are less likely to be at the centre of shareholder disagreements.2Be realistic about evidence in support of a claimUnfair prejudice cases are rarely won and lost solely based on witnesstestimony: positions often become entrenched and this can affect theprobative value of a party’s witness evidence. Further, a pleaded caseabsent further evidence is unlikely to be sufficient to make good aclaim even if the opponent’s case is struck out. Ultimately, the Court isusually looking for documentary evidence which proves the nature ofthe agreements reached and the unfairly prejudicial conduct alleged. It istherefore important for Petitioners to assess early on whether they have (orare likely to obtain) sufficient documentary evidence supporting their claim.If not, the case will be starting from a difficult position.18

3Be realistic about the value of any claimUnfair prejudice claims often involve the acrimonious breakdown of longstanding personal relationships and emotions can run high. However, therewill be times when despite this a Petitioner is unable to obtain a significantvalue for his or her shares even where some form of unfair prejudice isproved. Petitioners need to be realistic at the outset of any claim aboutwhat they are fighting for and determine that it actually makes goodeconomic sense to bring a claim.4Deal sensibly with settlement offersRespondents will often make an offer to buy out the minority shareholderat some point during an unfair prejudice petition and Petitioners need totreat such offers constructively. It is unwise for Petitioners to flatly refuse anoffer, even if it is unrealistically low. Instead, it is generally more prudent toexplain the reason why the offer is too low and make a sensible counteroffer.A failure to do this can have significant adverse costs implications.5Remember that the interests of the company trump those of anyindividual shareholderShareholders with Board positions must always remember that theirduties to the company are more important than their personal interests asshareholders. Directors must act in accordance with their fiduciary duties andmake decisions objectively. Excessive director remuneration and the failureto pay dividends (these typically go hand in hand) are issues where directorscommonly fall down in this regard. A clear documentary trail recording andexplaining any such decisions (in particular Board minutes) is key.19