A recent court case has reduced the risk on the part of company directors / shareholders involved in divorce proceedings that assets held by a company which they control will be made the subject of a court order for sale.
Posts tagged: shareholder rights
A typical claim in a shareholders dispute is when a majority shareholder in control of a company prejudices a minority shareholder by improperly extracting value out of a company. This can be done in different ways, for example by payment of excessive salary or by sale of company assets to connected parties at a low value. Sometimes this can leave the company insolvent. Given that the principal remedy for unfair prejudice is an order requiring the majority shareholder to buy out the minority shareholder it appears to leave the minority shareholder in a no-win situation as the shares are effectively worthless. However, the court will step in to do justice in such a situation and this has been confirmed in the recent Court of Appeal case of Maidment -v- Attwood and others.
The rights of shareholders to curb excessive executive pay is an increasingly hot topic. When even the Institute of Directors publishes a survey showing that executive pay is out of kilter with performance then you know that there is a problem. As for shareholder rights in attacking excessive remuneration, the practical effectiveness of such rights depends upon the size and nature of the company in question.
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.
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.
Lawyers involved in fighting for shareholders rights are not normally thought to be in a dangerous profession. That is unless you are a lawyer in Russia.
The death has been announced (see Daily Telegraph article) of Sergei Magnitsky, 37 year old father of two and a lawyer in the firm of Firestone Duncan in Moscow who were representing Hermitage Capital Management.
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.
A noteworthy addendum to Sir David Walker’s review of corporate governance is the open letter from the FSA to the Chairman of the ISC dated 19 August 2009.
This letter flags up the FSA’s support for more active shareholder engagement in disputes with boardrooms, with a view to promoting good corporate governance. This encouragement of shareholder activism at this level may be an important development.
There has been an avalanche of articles about the scandal of MP’s expenses as the Daily Telegraph drip feeds us the latest salacious details. My own perspective is to consider the parallels with shareholder disputes and the timely exercise of shareholders voting rights at Shell’s AGM provides an interesting comparison.
There is an interesting article in the latest edition of the Director Magazine about investor relations. It is a useful guide on ways to avoid shareholders disputes arising, of particular relevance to companies with a number of shareholders who may be at risk of shareholder activism.