Minority shareholder has partial success in unfair treatment claim

A minority shareholder has lost his claim that he was treated unfairly when trying to sell his shares back to the company.

Rob Winder Senior Associate Chartered Legal Executive in our Dispute Resolution team reports on this recent case.

However, he had a partial success in that the court agreed that his shares may have been undervalued by the company’s auditor.

The case revolves around Stuart Wells, a former director and 14.3% shareholder of Transwaste Recycling and Aggregates Limited, who sought to sell his shares following a breakdown in relations with the company’s majority shareholders.

Mr. Wells decided to exit the company after a police and HMRC raid on its premises in September 2015. His departure triggered a share transfer process defined by the company’s Shareholders’ Agreement.

This process required Mr. Wells to first offer his shares to the other shareholders. If they chose not to buy, the company was obligated to acquire the shares at a value determined by its auditor.

The auditor valued Mr. Wells’ shares at around £550,000, applying a 75% discount due to his minority stake. Disagreeing with this valuation, Mr. Wells believed his shares were worth closer to £7 million.

In response, he filed an unfair prejudice petition, alleging that the valuation was unfair and that he had been subjected to various forms of unfair treatment, including unlawful share dilution and excessive payments to companies connected to the majority shareholders.

The court ruled that Mr. Wells was required to follow the share transfer process from the moment he decided to leave the company. It found that any claims of unfair treatment after this decision were not actionable.

For issues before September 2015, the court dismissed allegations of share dilution but recognised that certain transactions might have negatively impacted the value of Mr. Wells’ shares.

However, the court did not dismiss Mr. Wells’ petition because it found that the auditor had failed to use up-to-date information when valuing the shares. This failure was deemed unfair and prejudicial, keeping Mr. Wells’ case active within the current legal proceedings should he wish to continue.

For more information about the issues raised in this article or any aspect of company law please contact Rob on 01228 516666 or click here to send him an email.