Shareholders taking directors to court
Discussion
Shareholders (over 10%) can call an EGM to remove a director.
Not sure on what basis shareholders can sue directors for negligence and what has allegedly happened. Minority shareholders can sue for ‘fraud on a minority’ but that is expensive.
A director could be sued for ‘breach of fiduciary duties’, is this what is being threatened. As someone else has said speak to your D&O insurers. Have they sent a pre-action letter?
Not sure on what basis shareholders can sue directors for negligence and what has allegedly happened. Minority shareholders can sue for ‘fraud on a minority’ but that is expensive.
A director could be sued for ‘breach of fiduciary duties’, is this what is being threatened. As someone else has said speak to your D&O insurers. Have they sent a pre-action letter?
It’s a very small residential management company. I’ve been a relatively passive co secretary , family member has been the Director and has been running things. We have done our best. Not taken out any money for us, invested in significant refurbishments over the years and built up a sinking fund.
We have complied with health, safety and company law etc but haven’t always held an AGM and shared accounts with other shareholders. Headline numbers are on companies house.
We have complied with health, safety and company law etc but haven’t always held an AGM and shared accounts with other shareholders. Headline numbers are on companies house.
A shareholder used to have no right of action against company directors although the company itself could take action against a director for breach of duty. Shareholders would requisition a general meeting and pass a resolution (50%+1share) to start proceedings.
This was widened in 2006 when some previous barriers were removed that had made suing individual directors almost impossible in the absence of fraud. The new rules introduced derivative actions through which shareholders can sue individual directors on behalf of the company itself and any compensation awarded will be paid to the company (not the shareholder) directly from directors’ own pockets. There's a significant limitation that all prospective lawsuits must be approved by a senior judge before they can proceed. Such claims are rare.
The usual way forward remains for the company to initiate a claim, not a shareholder.
This was widened in 2006 when some previous barriers were removed that had made suing individual directors almost impossible in the absence of fraud. The new rules introduced derivative actions through which shareholders can sue individual directors on behalf of the company itself and any compensation awarded will be paid to the company (not the shareholder) directly from directors’ own pockets. There's a significant limitation that all prospective lawsuits must be approved by a senior judge before they can proceed. Such claims are rare.
The usual way forward remains for the company to initiate a claim, not a shareholder.
Panamax said:
A shareholder used to have no right of action against company directors although the company itself could take action against a director for breach of duty. Shareholders would requisition a general meeting and pass a resolution (50%+1share) to start proceedings.
This was widened in 2006 when some previous barriers were removed that had made suing individual directors almost impossible in the absence of fraud. The new rules introduced derivative actions through which shareholders can sue individual directors on behalf of the company itself and any compensation awarded will be paid to the company (not the shareholder) directly from directors’ own pockets. There's a significant limitation that all prospective lawsuits must be approved by a senior judge before they can proceed. Such claims are rare.
The usual way forward remains for the company to initiate a claim, not a shareholder.
ThanksThis was widened in 2006 when some previous barriers were removed that had made suing individual directors almost impossible in the absence of fraud. The new rules introduced derivative actions through which shareholders can sue individual directors on behalf of the company itself and any compensation awarded will be paid to the company (not the shareholder) directly from directors’ own pockets. There's a significant limitation that all prospective lawsuits must be approved by a senior judge before they can proceed. Such claims are rare.
The usual way forward remains for the company to initiate a claim, not a shareholder.
That looks foreboding and scary
Surely there is a deminimus that makes this worthwhile. Our company is only very small with c£11k of income coming in a year
Babber101 said:
Thanks
That looks foreboding and scary
Surely there is a deminimus that makes this worthwhile. Our company is only very small with c£11k of income coming in a year
Maybe share some more detail of your concerns? I note you have not always shared the annual accounts, is there a reason for this?That looks foreboding and scary
Surely there is a deminimus that makes this worthwhile. Our company is only very small with c£11k of income coming in a year
This sounds almost identical to a situation near me. The treasurer has been fairly forcefully collecting sinking fund payments by knocking on doors and asking for cheques, yet not issuing invoices or receipts, or any evidence on how the money is used. Anyone who refused to pay has been banned from speaking at AGMs.
After repeated ignored requests to see evidence of how the funds were being spent, one of the directors has taken the treasurer and one other to court. This is also after several offers to view and make sense whatever information is available, in expectation that the Treasurer has lost or muddled the records and is just embarrassed by the state of it.
The crazy thing is that as all the leaseholders are also directors of the company that owns the freehold, the person taking the company to court will be effectively be on both sides of the case.
With regard to the OPs case, from what I have learned about the one local to me, is that sticking your head in the sand and hoping it will go away is going to result in the company of which they are an officer pursuing them as an individual for what their actions have cost the company.
If any offers of help or olive branches have been offered to resolve the situation, take advantage of them; the only winners in the long run if it goes to court will be the lawyers.
After repeated ignored requests to see evidence of how the funds were being spent, one of the directors has taken the treasurer and one other to court. This is also after several offers to view and make sense whatever information is available, in expectation that the Treasurer has lost or muddled the records and is just embarrassed by the state of it.
The crazy thing is that as all the leaseholders are also directors of the company that owns the freehold, the person taking the company to court will be effectively be on both sides of the case.
With regard to the OPs case, from what I have learned about the one local to me, is that sticking your head in the sand and hoping it will go away is going to result in the company of which they are an officer pursuing them as an individual for what their actions have cost the company.
If any offers of help or olive branches have been offered to resolve the situation, take advantage of them; the only winners in the long run if it goes to court will be the lawyers.
Edited by GliderRider on Monday 10th April 22:17
Babber101 said:
It’s a very small residential management company. I’ve been a relatively passive co secretary , family member has been the Director and has been running things. We have done our best. Not taken out any money for us, invested in significant refurbishments over the years and built up a sinking fund.
We have complied with health, safety and company law etc but haven’t always held an AGM and shared accounts with other shareholders. Headline numbers are on companies house.
Accounts can be shared now - nothing there sounds even close to being "negligent" or having cost the company (and therefore its shareholders) anything, unless the refurbishments are just for the Directors benefit. Or if the sinking fund is unrealistically large, but then that can always be reimbursed.We have complied with health, safety and company law etc but haven’t always held an AGM and shared accounts with other shareholders. Headline numbers are on companies house.
AGMs aren't a legal requirement anymore unless they are written into the Companies Articles.
Avoid court at all costs, as said above, the only winners there will be the lawyers.
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