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Ed Turner
Ed Turner,
Category: Law
Satisfied Customers: 1923
Experience:  Director and Consultant Solicitor (Self-Employed) at Ed Turner LLB Limited
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I am a shareholder of a business, but the directors who are

Customer Question

Hi I am a shareholder of a business, but the directors who are of equal shareholding are essentially winding the company down and transferring the assets to a phoenix company and essentially reducing my shareholding value to nil - is that legal?
JA: Have you talked to a lawyer about this? In which country do you live? If different, which country is your legal question related to?
Customer: Not yet - I am in the UK
JA: What steps have you taken so far?
Customer: I have raised my objection through meetings and emails but have not called an EGM yet to discuss this.
JA: Is there anything else the Lawyer should know before I connect you? Rest assured that they'll be able to help you.
Customer: That is all
Submitted: 17 days ago.
Category: Law
Expert:  Virtual-mod replied 16 days ago.
Hello,

I've been working hard to find a Professional to assist you with your question, but sometimes finding the right Professional can take a little longer than expected.

I wonder whether you're ok with continuing to wait for an answer. If you are, please let me know and I will continue my search. If not, feel free to let me know and I will cancel this question for you.

Thank you!
Expert:  Ed Turner replied 16 days ago.

Hello.   I am Ed, a Solicitor qualified in England & Wales with over a decade’s experience in the legal profession advising clients.

I specialise in Commercial Contracts, Business Transactions, Employment, Dispute Resolution, Personal Injury and Road Traffic Law and shall be reviewing your legal problem today.

Regarding the site’s automatic offer of a Premium Service Phone Call, I shall be delighted to talk with you by phone to discuss your issue in greater detail if you accept the offer.

However, if you do not want a phone call, please cancel the offer for a Premium Service Phone Call and you will not be charged extra.

Expert:  Ed Turner replied 16 days ago.

Unless a Company adopts bespoke Articles of Association and/or has in place private Shareholders’ Agreements (which in your case, your company appears not to have in place), a company’s Board of Directors can make most of the management and financial decisions of the Company without Shareholder approval, including agreeing contracts on behalf of the Company and taking on debt finance (i.e. bank borrowing), with the following exceptions.

Unless additional decisions are specified in the Articles of Association, the main decisions which require shareholder approval are:

- Appointment of Auditors (if there are any).

- Appointment or re-appointment of Directors.

- Removal of a Director or the Auditor.

- Adoption of the Annual Accounts and the reports of the Directors and Auditors.

- Declaration of Dividends.

- Changes to the Company’s name, Memorandum and Articles of Association.

- Voluntary Winding-up of the Company.

- Approval of property transactions involving Directors.

- Increasing the Share Capital and giving the Directors authority to issue the Shares.

Matters requiring a Special Resolution (i.e. 75% of the voting rights in favour) include:

- Amendment of Articles of Association.

- Change of name.

- Re-registration of private company as public.

- Re-registration of public company as private.

- Re-registration of unlimited company as limited.

- Reduction of the notice required for a general meeting.

- Disapplication of existing shareholders’ pre-emption rights (various circumstances).

- Reduction of share capital (various circumstances).

- Purchase of own shares from capital.

- Opting-in and opting-out resolutions in relation to takeovers.

Therefore, if you want the Company to take one of the above steps which requires a Special Resolution, the other two Shareholders may block the Resolution using their two shares and 50% voting rights.

If you as a minority Shareholder are concerned with any decisions that the Board of Directors is taking and the direction of the Company, you have the following options available to you.

Under the Companies Act*****has a wide discretion to make such orders as it thinks fit in response to the Application of a minority Shareholder where majority shareholders are acting in such a way which is prejudicial to their interests.   The Companies Act 2006 gives Shareholders the remedy of Unfair Prejudice.   Common examples of conduct that may amount to Unfair Prejudice include:

- Being excluded from management where there is a legitimate expectation of participation;

- A diversion of business to another company in which the majority Shareholder has an interest;

- A majority Shareholder giving themselves excessive financial benefits;

- An abuse of power and breaches of the Company’s Articles.

If the Court considers that there has been Unfair Prejudice, it has a general power to make any order it sees fit, including ordering the purchase of the minority shares at a “fair value” either by the other Shareholders or by the Company itself.   The Court also has the power to wind-up the Company.

There are various methods a Shareholder can enforce their rights, including:

- Calling a General Meeting of the Company and proposing a Resolution which redresses the situation;

- Asking the board of directors to act in the Company’s name against an individual Director (because generally the Shareholders cannot sue in the Company’s name);

- Applying to the Court for an Order that the Company is acting or has acted unfairly (the Unfair Prejudice action described above);

- Applying to the Courts for the company to be wound up;

- Suing the Directors by means of a derivative action.

Expert:  Ed Turner replied 16 days ago.

I hope this resolves your enquiry.   Please revert to me if you require any clarification of my answer to your question and I shall be delighted to assist.

Kind regards

LawyerEd