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Unfair Prejudice

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The Court of Appeal has given a timely reminder as to the fair treatment of minority shareholders.  Steven Grant, Head of Warner Goodman Commercial’s Department, evaluates a recent case in which a minority shareholder alleged that he had been mistreated by the company’s director and majority shareholder, and the implications of the case outcome for shareholders.

In the case of Maidment V Attwood there were various allegations, the main one being that the director had paid himself excessive remuneration resulting in reduced dividends for shareholders.

Mr Maidment and Mr Attwood were shareholders in an estate agent company.  Mr Maidment owned 25% of the shares and was not actively involved with the running of the company.  Mr Attwood owned 75% of the shares and was the company’s only director.  Their business relationship turned sour in about August 2001 and the two did not communicate between December 2003 and December 2008.

In 2002 Mr Attwood paid himself over £170,000 and £145,000 in 2003, despite the company making a loss of just over £169,000.  In all he received on average approximately £130,000 a year for the six years 2002 to 2007.  The Court noted that this compared to a former director who had earned £45,000 a year and a manager who the court felt had perhaps contributed more to the management of the business, who earned £30,000 rising to £50,000 in the same period.

The Court concluded that Mr Attwood had fixed his remuneration according to his own interests and contrary to his duties as a director.  The Court therefore allowed the minority shareholder’s claim.

This case highlights the perils of overlooking minority shareholders, even where they are not actively engaged in the business.  This is a common scenario and with the pressures of the last few years more cases like this have come to light.  The frustrations are understandable of a shareholder/director who runs the   business and doesn’t see why an uninvolved minority shareholder should share substantially in the profits but things need to be done in the right way.  The law gives powerful rights to shareholders, especially when a director can’t demonstrate that they are acting in the best interests of the company.

Don’t assume that being the majority shareholder gives you a free rein.  Also, don’t ignore the matter.  Early action, like buying the minority out, however uncomfortable, can save time and money in the long run.

If you’re a shareholder and would like some advice, contact Steve by email on stevengrant@warnergoodman.co.uk or call 02380 717 717.

ENDS

This is for information purposes only and is no substitute for, and should not be interpreted as, legal advice.  All content was correct at the time of publishing and we cannot be held responsible for any changes that may invalidate this article.