Shareholder Disputes

 

Shareholder grievances are at the focal of Fareya Azfar’s corporate disputes practice expertise. The firm has acted both for minority shareholders who are being marginalized in their companies, and for companies who face the threat of minority shareholder action.

Shareholders may be protected by the contractual terms of their shareholder’s agreement. If you have a shareholders agreement, the procedure for resolving disputes will be clear and known to shareholders. In that case, the dispute may be managed early, hopefully without the need for court proceedings. 

Besides the contractual protections under the shareholders’ agreement or articles of association, a shareholder with cause to believe that the directors and other shareholders have acted in a manner which is unfairly prejudicial to (at least) some shareholders, or have acted in a manner which devalues his shares has many statutory protections which provide a vast array of remedies.

We have represented minority shareholders to pursue their statutory rights and claim protections in the following instances:

  • not invited to general meetings or otherwise squeezed out of management anticipation
  • allotments of share For no discernible purpose or otherwise resulting in unfair dilution of minority share value
  • a failure to consult the complainant or to provide information;
  • misappropriation of company business or assets;
  • mismanagement of internal company affairs;
  • failure to pay reasonable dividends.

There is no prescribed list of actions or omissions that, by definition, amount to unfair prejudice. Both prejudice and unfairness must be evidenced. We take cognizance of the facts and circumstances of each case, establishing and evidencing the conduct complained.

Shareholders rights is a complex area, and shareholders and potential claimants need to consider the facts of any particular case carefully. The facts and circumstances of the case will always prescribe the choice of action which an aggrieved shareholder may bring.

 

―it would be impossible and wholly undesirable to define the circumstances in which the application of equitable principles might make it unjust or inequitable (or unfair) for a party to insist on legal rights or to exercise them in a particular way ― Lord Hoffmann in O‘Neill vs Phillips, (1999) 2 BCLC 1

ex-ante protections

Minority shareholders can seek to protect themselves against misuses of majority rule by bargaining for express protections in the articles of association or in separate shareholders’ agreements.

With experience, many shareholders disputes become identifiable as recurring instances. With our advice, shareholders can contemplate and agree in advance how the business will be conducted and conflicts will be resolved in future, and seek to anticipate and address likely problems insofar as these can be foreseen.

Carefully drafted incorporation agreements, partnership agreements, articles of association, and shareholder agreements can go a long way towards avoiding problems. Some of the rights that could be protected ex-ante in your shareholders’ agreement are:

  • preemption rights
  • tag-along rights
  • observer rights 
  • entrenchment of management
  • reserved matters, veto rights
  • information rights

Ex-ante contracting even addresses detailed exit provisions giving rise to a contractual right to exit on fair terms in defined events.

 

 

Remedies

The remedy that is most often sought is that the other shareholders buy their shares for a fair value.

Courts have the power to impose upon the parties to a dispute whatever settlement the court considers just and equitable. This discretion is deliberately unfettered for it allows the Courts to order the remedy which circumstances so warrant.

   

Shareholder Litigation

Often overlooked, particularly in fast-growing businesses, effective contract management can be a source of competitive advantage and the best contract management solutions can help you to maximise value. 

Expertise

Shareholder Litigation

Traditionally perceived as being about compensating shareholders for infringements of their rights or for losses they suffered as a result of negligent behaviour by the company and its directors, but for a long time now, an additional function of shareholder litigation has been put forward: to deter managerial misconduct. This is where our firm excels.

  • Overview
  • How it works

‘shareholder litigation’ comprises all civil actions brought by shareholders against managerial wrongdoings within companies in order to recover economic losses caused by them.. The firm has acted both for minority shareholders who are being marginalized in their companies, and for companies who face the threat of minority shareholder action.

Shareholders litigation has a focus on pre-trial activity.  Cases can have intense discovery demands and the case rarely goes to trial.

If you're unsure of how the contract management process works, it's important to understand the basics.  Every corporation has some form of contract management processes. We begin by auditing your existing process. If possible, we optimize your existing processes and optimise it to cause the least disruption.

Phases

There's the early stages or pre-award phase. This is all the work that takes place prior to a contract being given to someone, whether it be a business or an employee. The middle stage is when the process is awarded. This includes all the paperwork to make the agreement final. Third, there's the post-award stage. This is where a lot of contract management and maintenance comes in.

REVIEW

First, we categorize your contracts based on their strategic and financial significance. For each contract, we fully document aspects that will cost and aspects that compensate.

We define the contract responsibilities. Who is in charge of the contract creation, the contract approval, the storage/archiving/reporting, renewal, and destruction of contracts?

"According to a survey conducted by The Global Contract Management Association, companies lose on average 20% of the value expected from a contract, 12% on hard leakage (e.g. invoicing errors and price adjustments), and 8% on soft leakage (eg. delivery failures, poor experience)."

Unfair Prejudice

There is no prescribed list of actions or omissions that, by definition, amount to unfair prejudice. Both prejudice and unfairness must be evidenced. We take cognizance of the facts and circumstances of each case, establishing and evidencing the conduct complained.

  • corporate control and shareholder rights disputes.
Common causes for Shareholder Litigation

Minority shareholders may pursue litigation in instances such as:

  • not being invited to general meetings or otherwise being squeezed out of management anticipation
  • dilutive allotments of share for no discernible purpose or 
  • failure to consult  or to provide information;
  • management’s misappropriation of company business or assets;
  • mismanagement of internal company affairs; and
  • failure to pay reasonable dividends.

Tip

Contracts must be stored in one place, have one copy, quick retrieval and limited-time retention after project closure.

Related: Contract Playbook

IACCM research indicates that, on average, good contract development and management could improve a company’s profitability by the equivalent of over 9% of annual revenue.

Fareya Azfar

Fareya Azfar

PARTNER

f.azfar@fareyaaraoui.com
+971 56 705 8483

Areas of Contract Management

A complex area, and shareholders and potential claimants need to consider the facts of any particular case carefully. The facts and circumstances of the case will always prescribe the choice of action which an aggrieved shareholder may bring.

It’s important to regularly audit contracts to ensure that the terms are being met, and that the contract is continuing to hold its value to your company. 

The more important the contract, the more securely it is filed, but almost impossible to retrieve.

If you cannot retrieve it, why retain it? 

Companies securely stash away important contracts, which instead should be their daily point of reference.

Contracts must be stored in one place, have one copy, quick retrieval and limited-time retention after project closure.​

The most effective strategy for disputes prevention and promoting efficiency in your business is to understand your contractual obligations and the long-term risks of non-compliance.

There is no prescribed list of actions or omissions that, by definition, amount to unfair prejudice. Both prejudice and unfairness must be evidenced. We take cognizance of the facts and circumstances of each case, establishing and evidencing the conduct complained.

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