Exit rights of minority shareholders in a private limited company (IVOR nr. 72) 2010/3.3.9.2:3.3.9.2 Dismissal as a director in a quasi-partnership

Exit rights of minority shareholders in a private limited company (IVOR nr. 72) 2010/3.3.9.2

3.3.9.2 Dismissal as a director in a quasi-partnership

Deze functie is alleen te gebruiken als je bent ingelogd.Deze functie is alleen te gebruiken als je bent ingelogd.Deze functie is alleen te gebruiken als je bent ingelogd.

By far the most important category of unfür prejudice is the dismissal of a shareholder as a director in a quasi-partnership. In Ebrahimi v Westbourne Galleries, this was recognized as a ground for winding up the company.1 As we have seen above in the case of 0 'Neill v. Phillips, the removal from management in a quasi-partnership, without an offer for the purchase of the shares,2 may amount to unfür prejudice.3 In a quasi-partnership, the entitlement to management participation can usually be seen as an informal agreement between the members.

The removal as director from the management board must be involuntary. As is illustrated by the case of Larvin v Phoenix Office Supplies, if a member wants to sever his links with the company and resigns as a director voluntarily, no unfür prejudice will be present if the co-shareholders refuse to buy out the shareholder.

In the case of Larvin v Phoenix Office Supplies, a company was harmoniously run by three directors who were shareholders as well. During a board meeting of the company, one of the shareholders, Larvin, expressed his wish to sever all his links with the company to the other members. Larvin explained that he wished to leave the company because of difficulties in his private life. A few days later, he denied his resignation in a letter. Nonetheless, the other shareholders treated Larvin as having resigned as a director. Furthermore, Larvin agreed on the termination of his employment contract with the company. He also offered to sell his shares to the other shareholders. The other shareholders only wished to purchase these shares at a discounted value, reflecting their minority character.

Subsequently, Larvin petitioned on the basis of S. 994 CA 2006, claiming that he was unfürly prejudiced in his interests by his factual exclusion from the management. In addition, he held that, while the company could be characterized as a quasi-partnership, he was entitled to be bought out of the company at a price without a minority discount. The Court of Appeal confirmed that the company was a quasi-partnership, but did not reward Larvin with a buy-out. Auld LJ considered that it "does not follow from the fact that the company is a quasi-partnership that Mr Larvin was entitled to insist on leaving with an undiscounted value of his minority shareholding." He considered that there must be something more in order for S. 994 to be applicable.

Parker LJ held that Larvin wanted to be seated on the board in order to receive financial information about the company. He stated: "the plain inference is that Mr Larvin was using his position as director (albeit de jure only) simply as an aid to achieving as high a price as possible for his shares."4 He judged that an order for the buy-out of Larvin would be disproportionate. Hence, Larvin's petition was dismissed.

In Grace v Biagioli, four persons were involved in a company as shareholders and directors.5 While there was a dispute between the shareholders, one of them, Grace, secretly negotiated the purchase of a rival company. When the other shareholders found out about the negotiations, Grace was dismissed as a director, even though the negotiations were not fruitful. The High Court and, subsequently, the Court of Appeal held that the dismissal was not unfürly prejudicial. It was held that embarking on such negotiations without any prior disclosure to or discussion with his fellow directors and shareholders and his attempts to conceal the existence of the negotiations justified his dismissal.

Deze functie is alleen te gebruiken als je bent ingelogd.