Shareholder Disputes within Family Businesses

Family disputes can be difficult to deal with at the best of times, but what if there is a business involved? There are a number of ways families can manage and prevent disputes arising within family run businesses: well drafted Articles of Association, shareholder agreements and family constitutions can all help.

We often see cases where families have not given any thought to any preventative documentation and one, or a few, shareholders feel disadvantaged or unfairly treated with the way decisions are made in relation to the business. When this happens mediation or a round table meeting should generally be the first port of call. It allows all parties involved to air their grievances and attempt a settlement that has the potential to suit all parties.

Sometimes, however, this is not enough, and a member of the Company may have no other option but to apply to court under section 994 of the Companies Act 2006. This only applies to members of a company and therefore would not assist an individual who is not a member of the Company. Under this section, the Court has the power to provide relief to a shareholder on the basis that:

“(a) that the company's affairs are being or have been conducted in a manner that is unfairly prejudicial to the interests of members generally or of some part of its members (including at least himself), or

(b) that an actual or proposed act or omission of the company (including an act or omission on its behalf) is or would be so prejudicial."

A member needs to prove that the conduct is prejudicial and that it is unfair. Evidence is key and could include email correspondence, letters and any family constitution.

Examples of conduct that the Court have found to be unfair and prejudicial under section 994 include breaches of the Articles of Association, acquisition of assets which should have been acquired by the Company and diversion of business to another company that a majority shareholder has an interest in.

Relief under section 994 will only be granted if the claimant (i.e the member making the claim) has “clean hands”. Any improper conduct on the part of the claimant could result in relief not being granted. For example in the case of Re Weatherley Fencing Contractors Ltd [2018] EWHC 3201 (Ch) it was held that the actions and conduct of the claimant was at the heart of the breakdown of trust and confidence in the family business and as such the claimant was not successful.

The Court has “a wide discretion” under section 994, meaning that it has a broad range of remedies available.  This can include ordering one shareholder to purchase the shares of the aggrieved party at a rate determined by the Court.

If you or your family have concerns arising from a family business dispute, the TSP Dispute Resolution team is here to help. We deal with mattes in a sensitive and practical way to ensure that parties achieve the best result for themselves and, wherever possible, for the business. The team can be contacted on 01206 574431 or by email at info@tsplegal.com.