Where the relationship with a shareholder becomes a company problem, it needs to be carefully handled or it could developIe into a much greater and more expensive issue for the company.
Issues can arise when a shareholder believes the company is going in a direction the shareholder does not approve of or never agreed to when they invested in the company. This normally applies to minority shareholders. The shareholder might discuss their problem with other shareholders and this can create a group or class of shareholders that is opposing the company business. Alternatively, they might act alone and become disruptive. This is more fraught for the company where the disgruntled shareholder is also a director.
Apart from having to deal with a shareholder grievance, there is a good deal of executive time wasted on this internal dispute. So, it is very important for the company to ensure the proper steps are taken in dealing with the issue as quickly as possible and, towards this end, discussing the problem with the company solicitor is recommended.
Minority shareholders have rights enshrined in legislation, so it is of utmost importance that these rights are not violated. Such rows can get personal among
individuals who know each other and this can become very damaging for all concerned. It is important that any of the board members do not step over the line in dealing with the disgruntled shareholder.
If the disgruntled shareholder becomes such a problem that it is interfering with the business of the company, then the board can take steps to remove the shareholder from the register of shareholders.
Firstly, consult the Shareholders Agreement which all shareholders have signed up to and within that, there may be a clause that addresses the situation that has arisen.
It is very important that in dealing with the unhappy shareholder that in whatever action is taken by the company, the Shareholder's Agreement is followed.
Removing a Shareholder
Having consulted the Shareholder’s Agreement and taken advice from your solicitor, the Board of Directors may well decide to remove the shareholder.
If, having reviewed the Shareholder’s Agreement there is evidence that the shareholder is in breach of the Agreement, then this can justify the shareholder’s
removal. This, however, requires a high threshold because if the breach were minor, the shareholder could mount legal action against the company. Minor breaches can be dealt with internally and may not warrant the shareholder’s removal. Here your solicitor’s recommendation should be followed.
If the shareholder misrepresented the company, engaged in fraudulent activities, misused company’s assets, etc. these actions in themselves would justify the
removal of the shareholder. Other instances that would justify removal would be insider dealing, failure to perform specific duties, conflict of interest.
Once the decision has been made to remove the shareholder, the board then must put in place the procedures for this.
The company should do this in conjunction with their solicitor to ensure no error is made which could leave the company exposed to legal action by shareholders or their representatives.
The company should write to the shareholder citing the Shareholder’s Agreement and setting out clearly the reasons why the Board feel that it is in the
best interest of the company that the shareholder be removed from the register of shareholders.
The letter should invite the shareholder to a meeting to enable them to state their case or defend their position. At the conclusion of the meeting, unless the
Shareholder has persuaded the company not to remove the shareholder, the company should pass a resolution for the removal to proceed.
The value of the company needs to be agreed so that a value on the shares can be achieved. There is a school of thought that a majority is more valuable than a minority shareholding. This may be so in many cases but where a minority shareholders hold the balance of control; it is arguably that the minority shareholder is at least equal to and possibly more valuable than any other shareholders.
After the shareholder has been removed, make sure the proper documentation has been done, i.e., transfer of shares; notification to the Companies Registration Office, stamp and sign the stock transfer forms.
Most importantly: do not remove a shareholder without the guidance of your solicitor.
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COMPANY LAW Shareholder Issues
The plaintiff was a schoolgirl when she was involved in a road traffic accident in April 2019. In the collision she hit her head and sustained injuries but had no recollection or memory of the accident. She had not been wearing a seat belt when the accident occurred. The plaintiff’s airbag was deployed as also was the defendant's but, in his case, he had been wearing his seat belt and did not incur any injury. The case proceeded to an assessment of damages with a contributory negligence claim on account of the plaintiff not wearing a seat belt. The plaintiff suffered deep abrasions to her right temple and anterior hairline. This resulted in permanent scarring to her face and caused her considerable concern in respect of her physical appearance. The plaintiff was interested in makeup and beauty therapy and, although she successfully entered a beauty therapy course, she dropped out because of her injuries. The main scar to her face was 9cm by 4cm and was noticeable at a conversational distance. She was very self-conscious about her scars and wore heavy makeup to conceal them as much as possible. The plaintiff was also diagnosed with psychological injuries following the incident. It was considered that she had developed an adjustment disorder with depressive features at the time. She was prescribed antidepressant medication but stopped taking it after a few days. The plaintiff continued to experience soreness on the scar on her wrist after the accident. She also complained of headaches post-accident. In reviewing the evidence, the judge considered the contributory negligence caused by the plaintiff in her not wearing a seat belt. In a High Court case of O’Sullivan v. Ryan [2005] IEHC 18 the court measured that at between 10 and 25%. There was a dispute over whether the plaintiff hit her head off the side window which was smashed or the windscreen but on reviewing the expert evidence the court was satisfied that the injury was caused by the plaintiff hitting her head off the windscreen. The contributory negligence was assessed at 20%. There was some conflicting evidence on which was the dominant injury and its consequent value in injury terms. The court ruled that the dominant injury was the facial scarring. In measuring the value to be placed on the injuries the court considered a previous case involving a dancer who incurred facial scarring and who received €50,000 in damages though in that case the dancer continued in his career whereas in the case before the court, the plaintiff did not. The court ruled that the injury be valued at €60,000 for the dominant injury and other lesser injuries at €30,000 and special damages of €17,596 amounting to a total of €107,596 reduced by 20% for contributory negligence giving a net of €86,076 damages awarded. Power v Malone [2023] IEHC 366.
First Award Under New Damages Guidelines. After lengthy lobbying by insurance companies, who were charging higher premiums to cover larger PI awards in the courts, the government introduced, in April 2021, new Guidelines for the courts in their determination of their awards of damages. In a High Court case in July 2022, the judge was tasked to decide the level of damages for a plaintiff girl who was injure d following an accident but who developed Post Traumatic Stress Disorder (PTSD) for several months thereafter. The case was one of the first PI cases where the court had to decide on the damages by applying the new Guidelines. Some commentators were expecting the eventual award to be much reduced, but the actual award was higher than expected. The 14-year-old girl was struck by a car and knocked down. All parties agreed that she had suffered from psychological injuries after the accident, and these were diagnosed as PTSD. She also had some minor injuries and a small scar below her buttock. However, her main injury was PTSD, and this finding was supported by her parents and schoolteachers. She suffered from flashbacks, nightmares, panic attacks and poor attention at school resulting in a decline in her overall academic performance. She had received some professional counselling but would require more although she was progressing satisfactorily. The net issue at the hearing was the assessment of her injuries under the new Guidelines. The plaintiff maintained her injuries were somewhere between moderate and serious PTSD. The moderate type would result in an award of between €10K to € 35K while the serious version would result in a higher award between € 35k to €85K. Not surprisingly, the insurance company argued that her injury fell within the moderate category and should be valued at € 20k. The task of the court was to determine how the new Guidelines should impact on an award of damages. Importantly, it also noted that a court could depart from the Guidelines if the justice of the case requires but must set out concise reasons for doing so. While serious PTSD typically involved a disability for the foreseeable future, the moderate PTSD category envisaged that the plaintiff will have largely recovered, and any continuing effects will not be grossly disabling by the time the case comes on for hearing. The court was satisfied that the plaintiff’s PTSD fell into the moderate category but considering the negative impact on her schooling and Leaving Certificate prospects, it fixed an award at the top end of the moderate category being € 35k. The court also awarded her € 25k for her scar and soft tissue injuries which had largely settled. This brought the total sum awarded to €60k. This case illustrates how a fear of much lower court awards following the new Guidelines appears to be misplaced. Lipinski (A Minor) v Whelan [2022] IEHC 452
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