Gibraltar: Shareholder Disputes?

Introduction

Disputes between shareholders arise for a number of reasons. One of the most common reasons is where a previously good relationship turns sour. There may be a dissident shareholder who refuses to co-operate in the running of the business and who hampers the decision – making process. A shareholder or a group of shareholders may want to expel such a shareholder in order to resume the smooth running of the company. This article will outline the options available to members when attempting to resolve a dispute and examine the various remedies available to minority shareholders.

It is always advisable for members to have a shareholders agreement to clarify issues that may arise and make provision for dispute resolution. However, it is not uncommon for companies to overlook the need for such an agreement.

Possible remedies

Where a dispute arises, the shareholders should attempt to negotiate a solution. For example, the members can offer to buy out the dissenting shareholder. However, where negotiation fails, shareholders do have other options. The first step would be to seek legal advice on how to proceed. If the dissenting shareholder is also a director of the company, the second step would be removing them from the board. The third step would be to determine how best to remove them as member of the company. The power of a shareholder or a group of shareholders when making decisions depends on how many shares they hold. A special resolution requires a 75% majority of members present and voting. If the dissenting shareholder holds more than 25% of the share capital, the other shareholders may seek to reduce the dissenting shareholder's shareholding to below 25% by passing a special resolution but this may not be possible and will likely be opposed. Alternatively, as a last resort, the shareholders should consider winding up the company on the basis that there has been an irretrievable breakdown of a business relationship between shareholders.

Majority shareholders must act with caution as there are rules under common law and under Gibraltar legislation that protect minority shareholders (a shareholder holding less than 50% of the total shareholding).

Minority shareholder protections

Cancellation of a change of rights

Where provision is made by the company's core documents for authorising the change of rights attached to any class of shares, the holders of not less than 15% of the issued shares of that class are entitled to apply to court to have the change cancelled. The court will not allow the change if it is satisfied that it would unfairly prejudice the shareholders of the class (section 111 Companies Act). The following conduct may be classified as "unfairly prejudicial":

  • Exclusion from management (Ebrahimi v Westbourne Galleries Ltd);
  • Allotting shares in breach of pre-emption rights (Re DR Chemicals (1989) 5 BCC 39);
  • Making a rights issue in certain circumstances (Re a Company No 007623 of 1984 (1986) 2 BCC 99 191);
  • Providing misleading information to a company's share-holders (Re a Company No 008699 of 1985 [1986] BCLC 382);
  • Proposing to sell the company's business at a substantial undervaluation to connected persons (Re Posgate & Denby (Agencies) Ltd [1987] BCLC 8); and
  • Using the company's assets for the benefit of the company's controlling shareholders and family (Re Elgindata [1991] BCLC 959). Tel: + 350 200 79000 57/63 Line Wall Road Fax + 350 200 71966 PO Box 199 Web www.gibraltarlaw.com Page 2 of 2 Gibraltar

An act of the company requiring the confirmation or authorization of the court

Minority shareholders have a right to be heard in the court where an act of the company requires the confirmation or authorization of the court. Thus, if a decision has been made for reducing the company's capital under the Companies Act and the company requests the court to confirm the reduction under said Act, a shareholder is entitled to be represented on the application to oppose the reduction (Scottish Insurance Corporation Limited v. Vilsons and Clyde Coal Co Limited [1949] AC 462);

Common law derivative claim

A derivative claim is a claim brought by an individual shareholder in his own name but on behalf of the company. Minority shareholders have the right to bring a derivative action against wrongdoers who have committed a fraud on the minority if the wrongdoers are in control of the company (control simply means having a majority of the shares conferring voting rights). A resolution constitutes a fraud if it is not passed "bona fide for the benefit of the company as a whole", or if its effect is to discriminate between the majority shareholders and the minority shareholders so as to give the former an advantage of which the latter were deprived" (Estmanco (Kilner House)) Ltd v. Greater London Council [1982] 1 WLR 2). The appropriation of assets or advantages belonging to the company by the majority may also constitute fraud (Cook v. Deeks [1916] 1 AC 554).

Just and equitable winding up of the company

Minority shareholders have the right to request a compulsory winding-up on just and reasonable ground. For example, a minority shareholder may petition for winding-up on the ground that he has a "justifiable lack of confidence in the conduct and management of the company's affairs" (Loch v John Blackwood Limited [1924] AC 783, 788). Note that the court is unlikely to make such an order if the petitioner has, or is thought to have, another remedy (Re Professional etc. Building Society (1871) 6 Ch. App 856);

English case law shows the courts reluctance to rule in favour of majority shareholders to the detriment of the minority. In the case of Re Legal Costs Negotiators Ltd [1998] All ER (D) 244, there was a falling out of the members of the company. The respondent failed to carry out his accounting responsibilities. As a result the respondent ceased to be employed and resigned as a director. He held 25% of the shares in the company. The petitioners offered to acquire the respondent's shares but did not agree terms. The petitioners presented a petition seeking an order that the respondent be ordered to transfer or sell his shares in the company to the petitioners. The latter argued that the company's affairs were being conducted in a manner which is unfairly prejudicial to their interests because they (the three petitioners holding 75%) were now working for the benefit of all the shareholders (the 100%). The court held that the petitioners were able to remedy the problem by bringing the respondents employment to an end and producing his resignation as a director. As a result, the court decided against forcing the respondent to sell his shares.

www.gibraltarlaw.com/

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions