If you are involved in a shareholder dispute, as shown in the article here you can apply to the court to resolve your difficulties.
If you choose to solve a dispute with your business partner or other shareholder dispute by pursuing an order from the court under a s994 minority shareholders petition what is it that the court will order if you are successful. That is, what will you get?
According to s996 of the Companies Act 2006 the court has the following powers:
If the court is satisfied that a petition under this Part is well founded, it may make such order as it thinks fit for giving relief in respect of the matters complained of.
Without prejudice to the generality of subsection (1), the court’s order may—
a. Regulate the conduct of the company’s affairs in the future;
b. Require the company—
(i) to refrain from doing or continuing an act complained of, or
(ii)to do an act that the petitioner has complained it has omitted to do;
(c)authorise civil proceedings to be brought in the name and on behalf of the company by such person or persons and on such terms as the court may direct;
(d)require the company not to make any, or any specified, alterations in its articles without the leave of the court;
(e)provide for the purchase of the shares of any members of the company by other members or by the company itself and, in the case of a purchase by the company itself, the reduction of the company’s capital accordingly.
THE DISCRETION OF THE COURT
You will note from part (1) quoted above that the court has very wide ranging powers under s 996. Any decision made under this section is therefore referred to as being at the court’s discretion.
This means if your petition is successful the court has the power to grant any order that it thinks is the best solution to the problem after having considered the facts of the case. However, yhe most frequent order that is given by the court in response to a s994 petition though is for the purchase of shares under s996(2)(e).
ORDER FOR PURCHASE OF SHARES
Usually this will involve purchase of the shares of a minority shareholder by the majority shareholder. But, in rare circumstances the roles can be reversed, with a majority shareholder being bought out. If the shareholders in dispute own shares on a 50/50 basis, the court must come to a decision, based on all the facts, as to who has the right to buy out the other party.
VALUATION PROBLEMS
If you obtain an order for purchase of your (or your opponent’s) shares the next question you will face is how are they to be valued.
This will involve the instruction of experts either jointly or separately, and will be essentially on the basis of one of three alternatives decided by the court. The alternatives are:
For the shares to be valued as a proportion of the total value of the company as a going concern without any discount for the shares sold being a minority holding.
For the shares to be valued as a proportion of the total value of the company as a going concern but with a discount for the shares sold being a minority holding.
For the shares to be valued as a proportion of the value of the net assets of the company at their break up or liquidation value.
If their any other contentious matters concerning valuation, these will again be decided by the court, on a consideration of all the facts and with a view to achieving a result that the court considers fair.
This article is intended only as a brief summary of some issues regarding s994 petitions and should not be relied on as legal advice.
If you have a dispute, which you believe falls within the subject of this article please contact me to discuss the matter further.