Case study: Resolving a shareholder dispute with a £1.6 million settlement

Shareholder disputes can be highly disruptive, particularly in successful owner-managed businesses where personal relationships and commercial interests are closely intertwined.

In this case, Willans acted for a minority shareholder and director in a long-running dispute within a successful promotional products business. The client held a substantial minority shareholding and had worked in the business for many years, helping to grow it from a small operation into a highly profitable enterprise.

Relations between the shareholders deteriorated after one shareholder relocated overseas and disagreements arose concerning the management of the business, access to financial information, remuneration arrangements, dividend payments and the company’s future direction.

What happened?

The dispute centred on allegations that the majority shareholder had conducted the company’s affairs in a manner that was unfairly prejudicial to our client’s interests as a shareholder.

In England and Wales, an unfair prejudice claim can be brought under the Companies Act 2006 and allows a shareholder to ask the court to intervene where the company’s affairs have been conducted in a way that unfairly prejudices their interests.

In this case, key concerns included:

• Suspension of regular dividend payments on which our client relied for income.
• Restrictions on the client’s ability to participate in management and decision-making.
• Disputes regarding governance and banking arrangements.
• Concerns about transparency and access to financial information relating to associated overseas operations.
• A complete breakdown in trust and confidence between the parties.

The majority shareholder strongly disputed those allegations and subsequently commenced separate proceedings seeking the client’s removal as a director. The litigation therefore expanded into parallel proceedings before the Business and Property Courts.

Our approach

Willans’ team of director, partnership and shareholder disputes solicitors worked closely with counsel and undertook a detailed review of company records, financial information and the parties’ historic dealings. We advanced an unfair prejudice petition under sections 994-996 of the Companies Act 2006, arguing that our client had legitimate expectations regarding his participation in the business and that the conduct complained of had unfairly prejudiced his interests as a shareholder.

Alongside progressing the claim, we maintained a strategic focus on achieving a commercial resolution that properly reflected the value of our client’s shareholding and avoided the substantial costs and risks of a fully contested trial.

What was the outcome?

Shortly before trial, the parties reached a settlement recorded in a Tomlin Order approved by the High Court. As part of the settlement:

• Our client’s 35% shareholding was acquired for £1.591 million.
• The parties achieved a complete separation of their business relationship.
• The majority shareholder agreed to pay our client’s costs of the unfair prejudice proceedings, subject to assessment if not agreed.
• All related claims between the parties were resolved as part of a comprehensive settlement.

The settlement enabled our client to realise the value of a minority shareholding in circumstances where relations between the shareholders had irretrievably broken down. The outcome provided certainty, avoided the costs of a lengthy trial and delivered a clean exit on favourable terms.

How can Willans help with resolving a shareholder dispute?

Disputes between shareholders can threaten the future of a business and often require swift, strategic advice. If you need help resolving a shareholder dispute, please get in touch. Our team regularly advises shareholders, directors and business owners on unfair prejudice petitions, shareholder disputes, director conflicts and business separations.

This case study has been anonymised to protect client confidentiality. Every case turns on its own facts and outcomes will vary.

Our litigation and dispute resolution experts are highly rated and can help with a wide range of commercial disputes, including those between directors, partners and shareholders.