The limits of shareholders agreements

Many a boardroom dispute has been nipped in the bud thanks to a well drafted shareholders agreement.  However, sometimes they can exacerbate the problem, as appears to be the case in the current easyJet boardroom dispute.

A key element of the dispute is the right of Sir Stelios to appoint two additional non-executive directors.  As it is the board of directors in any company that has the day to day power in the company this could be a valuable tool in achieving his wider ambitions as a major shareholder.

However, the wording of the legal agreement entitling him to do this can apparently be interpreted as requiring that he is appointed as chairman in order to exercise this right.  This is a position that Sir Stelios has said he does not want and which would probably prove highly divisive on the board, sending easyJet shares even further downwards.

This legal agreement has been referred to in the press as being the articles of the company but such a provision is much more likely to be found in a separate shareholders agreement.  Such a fundamental uncertainty as to the basis on which the two additional directors can be appointed is obviously an unfortunate piece of drafting.   Who is at fault for this is a separate question all together and no doubt the lawyers involved in drafting the document will be vigorously defending their own interpretation of the provision. 

What this illustrates most clearly is that no agreement can ever cover every eventuality.  If shareholders or directors are up for a fight then such documentation will be pored over by eager lawyers looking for ambiguity and every uncertainty will be seized upon.

Shareholders agreements are a good tool to avoid boardroom disputes or shareholders disputes but are no panacea, particularly where the drafting is not as precise as it could be.

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1. easyDispute over trade mark « Law in the cloud — July 21, 2010 @ 11:20 am

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