When minority shareholders in a private company are unfairly prejudiced, the remedy granted most often is a share purchase order. Common grievances leading to this type of order include a minority shareholder being excluded from management of the business, disputes over the sharing of profits and exclusions from meetings.
Nature of a Share Purchase Order
Where a minority shareholder has been subject to unfair prejudice, he may petition a court for an order. The court has wide discretion to make such an order as it thinks fit. A share purchase order is a court order compelling the other shareholders to purchase the shares of the aggrieved outgoing shareholder. Such an order enables the minority shareholder to receive the value of his shareholding without having the company wound up. If granted, the net result is a clean break from the company (outstanding loans to the company are usually repaid at the same time).
Granting the Remedy
The court must be satisfied that unfair prejudice exists. As noted above, there are a number of factors that can lead to a finding of unfair prejudice. If unfair prejudice is found and the share purchase order is made by the court, the court may also order that the outgoing shareholder receive an interim payment on account of the purchase price for his shares pending determination of the final purchase price.
A share purchase order is a clean solution but the serious potential consequences to company cash flow or the majority shareholders’ finances mean that it is not granted lightly by the courts. The basis of valuing the minority shareholder’s shares to be purchase can also be a contentious issue and is often governed by the shareholders’ agreement.
If you are a minority or majority shareholder experiencing difficulties regarding your involvement in a company, Rollingsons has experienced lawyers who can help you. For advice or more information please contact James Crighton via e-mail jcrighton@rollingsons.co.uk or by phone on 0207 611 4848.
