Company Law Questions

[RolyPoly]

Hi, I have some questions regarding Company Law. I don't know if this is the right thread so admins please notify me or move this thread if I'm wrong.

Q1) If shareholders vote yes to a decision but the directors vote no to a decision, whose decision would/should prevail in the end?

a) I know that directors run the company and make management decisions. So what about the shareholders' views?
b) Can the directors refuse to follow the shareholders' opinion? If yes, what can the shareholders do about it?
c) Do the answers in relation to Q1-2 depend on what decision is to be made and whether shareholders' approval is required for that decision in the first place?

Q2) Why do shareholders go for derivative claims if the damages go to the company in the end? What is in it for the shareholders? (Dividends?) Why not go for an alternative route?

Hopefully someone can help clear my confusion

 

[Jaysen]

Hi, I have some questions regarding Company Law. I don't know if this is the right thread so admins please notify me or move this thread if I'm wrong.

Q1) If shareholders vote yes to a decision but the directors vote no to a decision, whose decision would/should prevail in the end?

a) I know that directors run the company and make management decisions. So what about the shareholders' views?
b) Can the directors refuse to follow the shareholders' opinion? If yes, what can the shareholders do about it?
c) Do the answers in relation to Q1-2 depend on what decision is to be made and whether shareholders' approval is required for that decision in the first place?

Q2) Why do shareholders go for derivative claims if the damages go to the company in the end? What is in it for the shareholders? (Dividends?) Why not go for an alternative route?

Hopefully someone can help clear my confusion

Some thoughts:

Q1) If shareholders vote yes to a decision but the directors vote no to a decision, whose decision would/should prevail in the end?

It sounds like you might be mixing up a board meeting (where directors vote) and a general meeting (where shareholders vote).

a) I know that directors run the company and make management decisions. So what about the shareholders' views?

At least in theory, directors are supposed to make decisions to promote the success of the company for the shareholders as a whole. This suggests they should factor in shareholders' views when they make decisions. But they're not obligated to.

In reality, there will be factors encouraging directors to take into account shareholders' views, such as the fact that shareholders can terminate and re-appoint them to the board.

b) Can the directors refuse to follow the shareholders' opinion? If yes, what can the shareholders do about it?

Yes they can. If shareholders make up 5% of the voting shares they can require the directors to call a general meeting and pass a resolution to redress the situation. If the decision hasn't been made, they could also pass a special resolution instructing directors to do/not do something (assuming the company has model articles). They could also appoint more directors or remove directors who are in favour of their opinion. Finally, the shareholders could go to the courts with some kind of claim (if this is the kind of situation we are talking about).

c) Do the answers in relation to Q1-2 depend on what decision is to be made and whether shareholders' approval is required for that decision in the first place?

Sort of. If shareholders' approval is required, it means there will be a general meeting. Shareholders can have their chance to vote when this is called and prevent a decision being passed - if they have enough votes.

If the decision didn't depend on shareholder approval, the shareholders would have to call a general meeting for this vote to happen.

Q2) Why do shareholders go for derivative claims if the damages go to the company in the end? What is in it for the shareholders? (Dividends?) Why not go for an alternative route?

I guess it's to stop problematic directors making bad decisions for the company, especially when they have a big influence over the board and when you're just a minority shareholder. As you said, the benefit is for the company, so if you're looking for damages for a particular shareholder, this is not the best route. In practice, derivative actions are a very limited avenue to take.

 

[RolyPoly]

@Jaysen Yes I think I did mix up the two. Thanks for your explanation to all my questions, things are clearer now.

So would you say that in practice, the common route for a shareholder to get damages for himself is the unfair prejudice route?

 

[Jaysen]

@Jaysen Yes I think I did mix up the two. Thanks for your explanation to all my questions, things are clearer now.

So would you say that in practice, the common route for a shareholder to get damages for himself is the unfair prejudice route?

I'm afraid I'm not sure what a common route is. I don't think shareholders have a great recourse if they want damages - I recall a few cases where the courts were pretty reluctant to interfere with directors' decision making.

Another option I didn't mention is suing for breach of contract. I don't know how popular this is, but shareholders can sue a director for a breach of the articles of association.

On a slightly unrelated note - you may have seen the CEO of Debenhams was voted off the board today: https://www.bbc.co.uk/news/business-46829442. That's probably one of the most popular actions an unhappy shareholder will take.