Whilst the title to this post risks yet more strange comments clogging up my spam filter there is a serious point to be made. Many people are unaware of the rights that they have as a small shareholder in a company. These rights are hidden away in the Companies Act 2006. Sometimes these rights can give minority shareholders leverage in the company they did not know they had.
Posts tagged: minority shareholder
Further to my previous post on this subject the Court of Appeal have upheld the decision in Fulham Football Club (1987) Ltd -v- Richards and confirmed that arbitration clauses in shareholder agreements will be enforced. Arbitration is an effective way of resolving disputes but minority shareholders in particular should be wary of agreeing to an arbitration clause in a shareholders agreement.
Shareholders Agreements are very useful tools that can stop disputes arising or help resolve them quickly and cheaply. However a recent case has highlighted a potential concern.
If your shareholders agreement contains an arbitration clause then there is a risk that you will be deprived of all the remedies that you might otherwise have under s.994 of the Companies Act. This means that caution should be exercised before inserting such a clause into a shareholders agreement.
A derivative action is one where a shareholder takes legal action on behalf of the company. This goes against the general rule that the affairs of the company are managed by the directors. The reason for this remedy to is to provide a mechanism for redress where, for example, directors refuse to act (particularly where they are the wrongdoers).
The Companies Act 2006 introduced a new procedure for derivative actions which includes a two stage process for permission. So far the courts appear to have been cautious about allowing shareholders to exercise the remedy but the recent case of Stainer -v- Lee and others may indicate a slightly more relaxed approach.
As yet another shareholders meeting registers disapproval of executive pay, this time at easyJet, the question arises as to whether now is the time to hand some greater control over directors remuneration to shareholders.
The EU Shareholder Rights Directive is a grand title but on close analysis it does not add much to the armoury of a UK shareholder aggrieved with the company in which they hold shares.
Consequently it has been implemented in the UK (via the Companies (Shareholders’ Rights) Regulations 2009 with relatively little fanfare. The main reason for the lack of excitement is that the regulations generally only apply to “traded companies” and they only marginally increase shareholders rights or powers overall.
Marks & Spencer, which has suffered a spate of boardroom battles over the years, continues to provide examples of institutional shareholders attempting to exert control.
The latest shareholder intervention occurred at the recent AGM of the company when a group of institutional shareholders lead by local government pension funds sought to bring forward the appointment of an independent chairman. Currently Sir Stuart Rose occupies both the roles of chief executive and chairman which on the face of it is a deviation from the corporate governance code promulgated by the Financial Reporting Council.
Shareholders have statutory and other rights and in theory at least are the ultimate controllers of any company. However two recent examples show how these rights are something of a blunt instrument when it comes to forcing the company in a particular direction.