High Court Acts to Protect Rights of Minority Shareholder in Family Business

Family-run enterprises represent an enduring and highly effective business model – but only for so long as trust and affection between board members persists. In one case, discord between a father and son required High Court intervention to restore the management of a family group of companies to an even keel.

The father, who was aged 85 and founded the business with his wife, was a director of the group and a minority shareholder. His fellow directors and shareholders – his son and daughter-in-law – controlled the boards of the three companies that made up the group. Acting in concert, they were able to outvote him.

On the basis that his son and daughter-in-law had intentionally wholly excluded him from the management of the group, the father launched proceedings under Section 996 of the Companies Act 2006. He asserted that they had, by their conduct, unfairly prejudiced his position as a minority shareholder and sought an order that would enable him to buy out their shares in the group.

The son and daughter-in-law denied they had done anything that prejudiced his position and contended that the litigation was motivated by spite. They asserted that the driving force behind the case was another member of the family who had resigned from the group in acrimonious circumstances.

Following a pre-trial hearing, the Court was not satisfied that it would be appropriate, on an interim basis, to remove the son and daughter-in-law from their positions on the companies' boards. It also declined to order that a shareholders' meeting be convened on terms that would facilitate their removal.

The father, however, had a strongly arguable case that he was entitled to have access to the group's management information and records so as to enable him to discharge his duties as a director without being impeded by his son and daughter-in-law. It was appropriate for the Court to take steps to regulate the group's affairs, and the conduct of the son and daughter-in-law, pending a trial of the action.

Unless the son and daughter-in-law offered suitable undertakings in order to protect the father's pre-trial position, the Court would issue an interim injunction to give effect to its ruling. The father would also be required to give an undertaking regulating his use of company information disclosed to him.