Are you facing a Shareholder and Director Disputes in London or England and Wales? Learn about directors’ duties, common causes of conflicts, legal remedies for shareholders and how to remove a director. We provide expert legal advice to protect your rights.
What Are A Director’s Duties? Obligations and Responsibilities under the Companies Act 2006
Under the Companies Act 2006, directors owe various duties to the company and its shareholders. These duties can be summarised as follows:
- Duty to act within powers: Directors must act in accordance with the company’s article of association and exercise their powers for proper purposes.
- Duty to promote the success of the company: Directors should act in a way that they believe is most likely to promote the success of the company for the benefit of its shareholders as a whole.
- Duty to exercise independent judgment: Directors must exercise their powers independently, considering the long-term consequences and interests of the company and its shareholders.
- Duty to exercise reasonable care, skill, and diligence: Directors should perform their duties with the care, skill, and diligence that would be expected of a reasonably diligent person with their knowledge and experience.
- Duty to avoid conflicts of interest: Directors should avoid situations where their personal interests conflict with the interests of the company. Any conflicts should be disclosed and authorised in accordance with the articles of association.
What Are The Common Causes of Shareholder and Director Disputes?
Shareholder and director conflicts can arise due to various factors. Some common causes may include:
- Differences in vision and strategy: Shareholders and directors may have divergent opinions on the company’s direction, leading to conflicts regarding business strategies, expansion plans, or investment decisions.
- Mismanagement or breach of duties: Directors may fail to fulfil their duties, such as acting in the best interests of the company or disclosing conflicts of interest, which can cause dissatisfaction among shareholders.
- Financial disputes: Disagreements over financial matters, including dividend distributions, executive compensation, or allocation of profits, can give rise to conflicts between shareholders and directors.
- Shareholder oppression: Minority shareholders may feel marginalised or unfairly treated by majority shareholders or directors, leading to disputes over corporate governance, decision-making, or dividend policies. This may lead to an unfair prejudice claim based on section 994 of the Companies Act 2006.
A Director is Committing Fraud / Stealing From The Company, What Should I do?
If you suspect fraudulent activities or theft committed by a fellow director, it is crucial to take immediate action to protect the interests of the company and its shareholders. Here are some steps to consider:
- Gather evidence: Collect any available evidence that supports your suspicions, such as financial records, transaction documents or witness statements. Maintain confidentiality to avoid tipping off the suspected director.
- Consult a Solicitor: Seek advice from an experienced solicitor who specialises in shareholder and director disputes. They can guide you on the legal options available and help you build a strong case i.e. Suspend any document destruction policies, check the company’s fraud and IT policies to access messages/ WhatsApp messages on the suspected director’s company mobile phone.
- Report the matter to Action Fraud (a specialist branch of the police). If the evidence suggests criminal activity, tax evasion or anything more serious then consider reporting the matter to HMRC or Serious Fraud Office (SFO).
What Are The Legal Remedies in A Shareholder and Director Disputes?
When facing a shareholder and director disputes occurs, shareholders have several legal remedies at their disposal. These may include:
- Derivative actions: Shareholders can initiate a derivative action on behalf of the company against a director for breach of duty. This allows shareholders to hold directors accountable for their actions that harm the company.
- Unfair prejudice petitions: Shareholders who believe they have been treated unfairly can file an unfair prejudice petition, seeking relief from the court. If successful, the court may order remedies such as share buyouts, changes in management, or adjustments to shareholdings.
- Breach of fiduciary duty claims: Shareholders can bring a claim against directors who have breached their fiduciary duties, seeking compensation for any losses suffered as a result.
How to Remove a Director as a Shareholder in London and England and Wales?
Removing a director requires following the proper legal procedures. The following steps are typically involved:
- Review the company’s articles of association: The articles of association contain provisions related to the removal of directors. Ensure that you understand the specific requirements and procedures outlined in the document.
- Shareholder resolution: As a shareholder, you may need to call for a general meeting and propose a resolution for the removal of the director. The resolution must be passed by the required majority of shareholders.
- Special notice: Send a special notice of the resolution to the company, following the prescribed timeline as per the Companies Act 2006. This notice informs the company of your intention to remove the director.
- General meeting: Hold the general meeting where the resolution for the director’s removal is discussed and voted upon. Ensure compliance with all legal requirements and record the minutes of the meeting.
- Notification to Companies House: After the successful removal of the director, notify Companies House of the change in directorship within the prescribed time limit. Or make the necessary changes using Companies House’s Online Portal.
Shareholder and director disputes can be complex and require a solid understanding of your legal rights. Directors’ duties, common causes of conflicts, legal remedies, and the process of removing a director are all vital aspects to consider.
If you find yourself involved in such disputes in London, seeking professional legal advice from experienced solicitors who specialise in shareholder and director matters is crucial. Our Legal Director, Mr Usman Anwar, is experienced in shareholder and director disputes.
Directors or shareholders involved in a dispute should consider whether early mediation is a possibility to negotiate a settlement. Mediation can be highly successful. For more information, read our blog Mediation and Alternative Dispute Resolution (ADR).
Still not convinced? Read some of our business client’s success stories and testimonials on how they settled their business disputes using our legal service.