
Regrettably, disputes within private companies are not uncommon between Directors or Shareholders.
These disputes can happen for a variety of reasons. For example, from diverting business away to a new company, or there is no longer a common theme on how to run the company, or there is mismanagement of running the company, or other breach of duty.
A Shareholders’ Agreement would set out provisions on how certain matters are approved by Directors/ Shareholders such as for example entering business contract, voting rights, and transfer of shares.
If there is no such agreement, then the position is governed by the Companies Act 2006 which allows Shareholders to remove a Director from office.
A dismissal claim could arise if the Director is an employee of the company.  In some companies, Directors who are also shareholders may have special rights on resolutions that may seek to remove them. These are not dealt within this article.
Shareholder removing Directors
In brief, shareholders with 5% or more of the voting power can call a general meeting to take action and a resolution must be passed by more than 50% of the votes at the meeting.
Minority shareholders with less than 50% of the shares has limited powers but are in a weaker position. A Minority shareholder may be able to apply to Court and take legal action alleging that the affairs of the company are ‘unfairly prejudicial’ to him. This is a claim under Section 994 of the Companies Act 2006.
In some circumstances, a minority shareholder may be able to bring an action in the name of the Company which is known as a ‘derivative action’.
Company disputes in the boardroom are complex which require careful consideration of Company Law and, in some instances, Employment Law.
Articles of Association, Shareholder Agreements, Director Service Agreement and Employment Contracts must be examined.
Resorting to court proceedings should be the last resort. It is vital to resolve any disputes quickly and smoothly and legal advice should be taken to manage the position without resorting to the courts.
Article written and contributed by Summerfield Browne Solicitors
DISCLAIMER: This article should not be regarded as constituting legal advice in relation to particular circumstances. This article is merely a general comment on the relevant topic. If specific advice is required in connection with any of the matters covered in this article, please speak to Summerfield Browne Solicitors directly.