Minority shareholders may now be awarded compensation by the courts for wrongs suffered at the hands of majority shareholders. This change, brought about by the Companies Act 2014, is a further powerful weapon in the armoury of a wronged shareholder of which both minority and majority shareholders should be mindful.
Section 212 of the Companies Act 2014, which came into force on 1 June 2015, deals with the protection of minority shareholders and provides that if a court is of the opinion that a company's affairs are being conducted or the directors' powers are being exercised in a manner oppressive to a member of the company or in disregard of its interests, it may make any order it thinks fit with a view to bringing to an end the matters complained of.
The section derives directly from section 205 of the Companies Act 1963, and both sections are broadly similar save for the addition of an express provision in the 2014 Act providing for the payment of compensation.
Under the 1963 Act, the courts had a wide discretion as to what relief they might direct, provided the relief was given with a view to bringing to an end whatever was causing the oppression. Any court order made must have had that object, and an order for the purchase of the oppressed minority's shares was the most commonly invoked remedy to end matters complained of.
Minority shareholders have argued that they should be entitled to an award of damages under the 1963 Act to compensate them for the oppressive behaviour. The Supreme Court, however, established that a court could not make any such award of damages. The reason for this being that an award of damages would not satisfy the condition that the order be made with a view to bringing to an end the matters complained of. In some cases under the 1963 Act, the courts included what could be described as an element of compensation in determining the price to be paid for a minority's shareholding, for instance valuing the shares as if there had been no oppression. The Supreme Court acknowledged that while compensation was included in the relief given by the courts in some cases, it was given in extremely limited circumstances, namely where the majority had been directed to purchase the minority's shares. Moreover, the compensation was purely incidental to the main relief, which was the purchase of the shares.
Under the 2014 Act, the discretion on the part of the courts with regard to what order it might direct continues subject to the limitation that any order granted must be made with a view to ending the matters complained of, and an order that the majority buy out the minority is likely to remain as the preferred remedy. However, the 2014 Act now expressly permits the court to make an order for the payment of compensation. This important change reflects the reality that a minority shareholder who successfully proves oppression has generally been wronged and deserves compensation as part of the remedy.
This article contains a general summary of developments and is not a complete or definitive statement of the law. Specific legal advice should be obtained where appropriate.
