Whether or not unhappy shareholders choose to remove a director, there are two key actions which shareholders may be able to bring in respect of a director’s misconduct.
Section 260 CA 2006 has introduced a new statutory derivative claim which allows a shareholder to bring a claim on behalf of the company (i.e. where the cause of action vests in the company) arising from an actual or proposed act or omission involving the negligence, default, breach of duty or breach of trust by a director of the company. This includes a breach of the director’s general duties set out in ss.170-177 CA 2006. Section 260 CA 2006 applies to current, former and shadow directors.
The second action is for protection of shareholders against unfair prejudice. Under s.994 CA 2006, a shareholder can apply to the court for an order that the company’s affairs are being, have been, or are proposed to be conducted in a manner that is unfairly prejudicial to that shareholder’s interests or to the interests of shareholders generally.
Case law (in respect of the equivalent provision in CA 1985) has tested the meaning of unfair prejudice. The courts have been specific and restrictive in their interpretation of what amounts to unfair prejudice. Examples can include excessive remuneration of directors or a failure to pay a dividend. The courts are, however, unwilling to intervene in internal affairs or management decisions of companies. Therefore petitions based on disagreements in company policy (e.g. as to whether to pursue a sale of the business or some
other exit strategy) will be more difficult to bring.
Such an action is often brought at the same time as an action under s.122(1)(g) IA 1986 which gives a shareholder the right to apply for the company to be wound up on the grounds that it is just and equitable to do so.