Minority shareholders have limited influence over the direction a company takes, but they do have rights and, as a High Court ruling showed, the law can move extremely quickly to ensure that they are not trampled upon.
A corporate minority shareholder in a real estate investment company objected to its controlling shareholders’ proposals to issue new shares and loan notes. The day before the proposals were due to be considered at a directors’ meeting, the minority shareholder applied to the Court for an emergency injunction.
In arguing that the planned meeting would not be quorate, the minority shareholder pointed to the company’s articles of association, which required that board meetings be attended by at least four directors, one of whom had to be nominated by the minority shareholder.
It was also submitted that the proposals, if passed, would breach the terms of a shareholder agreement which required that the minority shareholder’s written consent be obtained before certain actions could be taken. Those included the allotment, issue, buyback or redemption of any share or loan capital, or the granting of any options.
In granting the injunction sought, the Court found that the balance to be struck was very one-sided and that the minority shareholder had by some margin passed the threshold of establishing a serious issue to be tried. Were the meeting to go ahead, there was a real risk that the minority shareholder’s interests would be unfairly prejudiced, within the meaning of Section 994 of the Companies Act 2006.
The controlling shareholders had not established that they or the company would suffer any real prejudice due to the meeting’s postponement. On the other side of the balance, the effect on the minority shareholder were the proposals to be passed would be irreversible. An award of damages would therefore not be an adequate remedy for any prejudice it might suffer.
The minority shareholder undertook to pay appropriate damages to the company and the controlling shareholders if the injunction subsequently turned out to have been wrongly granted. The Court noted that that undertaking could be relied upon in that the minority shareholder had a positive balance sheet of 26.9 billion euros.