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Minority shareholders: know your rights

McKeever Rowan Solicitors © 2020 all rights reserved.
Section 212 of the Companies act 2014 offers specific protections to minority shareholders.

MOST IRISH COMPANIES are small private companies in which there are usually only a small number of shareholders. Those shareholders tend to work in the company, and are frequently also directors. If disputes break out between the shareholders, the first line of attack is often to exclude minority that shareholders on the basis of their employment, rather than on the basis of theirhis shareholding or directorship. The shareholder may then be suspended from employment or excluded from the business premises. In the worst case scenario, the shareholder may be sacked, removing them from the day to day running of the business and, most importantly, depriving them of an income.

Often in this kind of company there is no actual employee contract and the roles in the company may have been assigned informally. One remedy for such a shareholder comes under Section 212 of the Companies Act 2014, which prohibits oppressive conduct by the majority against the minority shareholder. A The minority shareholder also has remedies under employment lawegislation, including the Unfair Dismissals Acts, in their capacity as an employee.

To avail of the protection afforded by Section 212, the a minority shareholder must be registered as a member of the company and maintain thea beneficial interest in the relevant shares at the time of the application for relief is heard.

What kind of conduct constitutes oppression of a minority shareholder?

The generally accepted test is that oppressive conduct means that the powers of the company have been exercised in a manner that is burdensome, harsh and wrongful. This includes isolated acts of oppression, or passing a resolution in a general meeting that has the effect of altering the rights attached to the classes of shares to the detriment of minority ordinary shareholders. The court does not have to make an actual finding of any wrongdoing to find for the oppressed minority.

Typical examples of oppressive conduct include:

  • Persistent, inappropriate and bullying behaviour
  • Suspension from duties
  • Demotion
  • Financial penalisation/impropriety
  • Physical assault.

The most common manner in which a member is oppressed is by way of suspension, frequently without pay, which can be a breach of employment legislation.

Suspension of employees

Suspension of an employee can cause somebody huge reputational damage. In the main, there are two types of suspension; “holding” and “punitive”. The “holding suspension” is not as serious (it is temporary in nature until all issues have been determined) but even a holding suspension can have consequences that will affect the reputation of the employee. Other company members should be careful suspending one of their fellow members, in the capacity of an employee. They will have to show that it has not been undertaken lightly and only after full consideration of the necessity for it, pending a full investigation of the conduct in question. Suspension which has as its principal consequence the side-lining of an employee shareholder member from employment in the business could well be subject of a successful minority oppression case.

The remedy is also applicable to quasi-partnerships where the parties fall out or lose faith in one another. This poses significant risk to the company so members should be very careful before engaging in the severing of a quasi-partnership or the dismissal of a shareholder. The court may well see this as a breach of an understanding based on mutual trust and confidence. The ultimate consequence could be the winding up of the company on just and equitable grounds.

It is open to an oppressed minority for the shareholder to bring claims against a company under employment legislation before the Workplace Relations Commission and in the High Court under Section 212 of the Companies Act 2014. It is far more expensive for a company to fight a case in the High Court than before the Workplace Relations Commission. As no costs awards are made by the Workplace Relations Commission it is a much cheaper venue and High Court costs can be prohibitive. Companies should be cautious and considered in their actions against shareholders. Shareholder who makes a protective disclosure may be able to avail of .

It is possible that penalisation or dismissal relating to that a protected disclosure could find itself be characterised as oppressive conduct.

For more information contact Maurice Dockrell >

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