“The strong rule the weak”. This idea is not new, but should it be allowed in business? Would this not stunt the economic growth of a country for failing to protect its shareholders? Any uncertainty over an investment will deter investors and shrink the overall economy. To mitigate risk to minorities and to ensure they are not bullied, or squeezed out, in the 1963 Act under Section 205 the minority shareholder protection rule was enacted into law.
Section 205 stated that a member who finds the conduct of the company being “exercised in a manner oppressive to him or any of the members (including himself), or in disregard of his or their interests as members, may apply to the court for an order under this section”. This provides for the minority or the oppressed to apply for relief. Relief came in the form of dealing with the source of the issue, an order would be made to prevent further action or to force the majority shareholder to purchase the shares of the minority. This offered relief from the oppression, however monetary compensation was never allowed; shares had to be purchased at what was deemed a fair price and no compensation was afforded. In the case of Irish Press PLC v Ingersoll Irish Publications Limited the trial judge did suggest that losses incurred should be reflected in the share price when a purchase order is made. However this is still not direct compensation.
Companies Act 2014
The new Companies Act 2014, since coming into effect on the 1 June 2015, has changed little in regards to the wording or framing of the Minority shareholder protection and is provided under section 212(3)(d). The key difference is that compensation may now be awarded. This means if the minority is oppressed, or the conduct of the company is not in their interest, they may seek relief as before, and once again it must seek to deal with the complaint matter. However the new Act permits the court to grant compensation because in cases of minority oppression the minority can be seen to have been wronged and thus deserve compensation.
It is likely that the main remedy for oppression will remain to be the purchase of the minorities shares. However what is not clear is to what extent compensation will be permitted by the courts, will it be the norm and to what extent will compensation be granted in terms of quantitative value?
At this early stage guidance in relation to these questions has been minimal. It is still too early for any substantive case law to have been developed by the courts under this new act. Nevertheless, it is possible to speculate that this may encourage an increased confidence in being a minority investor due to increased protection now afforded. It is always advisable for Companies to ensure that a high level of good governance is maintained internally and doing so ought to assist in mitigating potential minority shareholder disputes. In instances in the past, it has been viewed that the remedy forced the minority to hand over all power to the majority. It is anticipated that the Companies Act 2014 has addressed this by theoretically empowering minority shareholders with a potential method of impacting their oppressors by arming them with the ability to bring a tortious claim for damages. It remains to be seen how the courts deal with this issue in practise and whether they will take potential future value into account when remedying a minority dispute.