When a minority shareholder invests their life savings and a majority shareholder abuses his power, the consequences can be devastating.
Our client’s challenge
We were approached by a minority shareholder in a UK company who had fallen out with the majority shareholder over a decision regarding whether to take on new investment into the business. The company, having several creditors, was facing financial difficulty.
The minority shareholder (who wanted to take on new investment) had invested his life savings into the business. For him, taking on new investment would enable him to withdraw his life savings from the business and retain his minority interest. However the majority shareholder decided to pull out of the deal.
The legal challenge
It soon became apparent that the majority shareholder intended to put the company into administration. Doing so would have enabled him to buy the business back from the administrator at short notice with a small amount of the sale proceeds being used to pay the company’s many creditors. The minority shareholder would have been left with nothing and would have lost his life savings.
Making it happen
We argued that the lawyers instructed by the majority shareholder had mistakenly been instructed by the company rather than the majority shareholder.
We were able to attack this on the basis that by taking instructions from the company, the lawyers had an obligation to provide all the advice that they had given to all the directors which included the minority shareholder. This resulted in conflict of interest and put the majority shareholder on the back foot.
We also made it clear that our client, backed by the investors, would pay more than their client. This destroyed their route to getting rid of our client and meant that the new investor they found lost patience and pulled out.
The right outcome for our client
The majority shareholder was left desperate to buy out the minority shareholder but at a very low price. We then issued a winding up petition to put pressure on the majority shareholder to either put up or shut up. Ultimately, by applying this pressure, we were able to force the majority shareholder to accept a very small price for his shares and to resign and walk away from the company.
The minority shareholder was left exactly where he wanted to be: a minority shareholder in a company which repaid part of his debt and agreed a repayment profile for the balance of the debt over a period of time while enabling him to stay in the business.
“Was this fair? Yes. The majority shareholder was trying to abuse the minority shareholder. We turned the tables on majority shareholder and ejected him from the business.” Peter Jeffery, Corporate Partner