Buying Out Minority Shareholders under the Companies Act 1985
Below is a MRR and PLR article in category Business -> subcategory Other.
Buying Out Minority Shareholders under the Companies Act 1985
Overview
This article delves into the rights of minority shareholders and the process of compelling a sale of minority shares as per Sections 459 and 461 of the Companies Act 1985.
Minority Shareholder Rights
In the Court of Appeal case Profinance Trust SA v Gladstone (2001), the rights of minority shareholders were closely examined. The provisions under Sections 459-461 offer a remedy for shareholders facing unfair prejudice, providing an alternative to winding up a company.
Robert Walker LJ emphasized that, despite these sections being designed to offer a straightforward remedy, they often result in protracted legal battles involving numerous accusations.
Key Provisions: Sections 459 & 461
Section 459 allows a member to petition the court if the company’s conduct unfairly prejudices members' interests.
Section 461 gives the court broad powers to offer relief, which may include regulating company affairs, ordering specific actions, authorizing civil proceedings, or arranging for the purchase of shares.
Application of Sections 459 & 461
The court’s power under Section 461 includes directing a purchase of shares, typically valuing minority holdings fairly, especially in "quasi-partnership" cases.
Valuation Date and Interest
In Profinance, two main questions arose regarding valuation:
1. Valuation Date: The court has discretion to set this date, but it must apply rational principles.
2. Interest on Valuation: The court can award interest from the valuation date to payment, adjusting valuations to reflect changes that might have occurred under different circumstances.
Fair Valuation
Two primary considerations guide the court in determining a fair valuation date:
1. Proximity to Sale: The date should reflect the current value of the shares being sold.
2. Petition Date: Often seen as the starting point, as it marks when the petitioner addresses the unfair conduct of the majority.
While the Court of Appeal in Profinance favored the petition date, other dates might be more appropriate in certain situations, such as:
- When the company’s business or structure has significantly changed.
- In cases of general market decline, especially if the majority shareholder’s conduct is severely prejudicial.
- If conduct and negotiation history between parties suggest fairness in using another date.
Conclusion
Recent case law shows the courts' reluctance to widely apply Section 459 unless controlling shareholders act improperly. The underlying expectation is for parties to engage in dialogue and resolve buyouts amicably.
For more information, visit [Kaltons](http://www.kaltons.co.uk).
You can find the original non-AI version of this article here: Buying Out Minority Shareholders under the Companies Act 1985.
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