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Resolving Disputes in the Boardroom

Boardroom conflict can often mean directors falling into opposing camps, with deadlock the result. As a High Court decision shows, taking legal advice is often the only means of achieving a resolution.

The case concerned a holding company that was formed to take over a troubled family trawling business. Through a corporate vehicle, members of the family held a minority shareholding in the company and 40 per cent of boardroom voting rights. Two members of the family, a father and son, were directors of the company. A further three directors were appointed by an international fishing group, which held a controlling stake in the company, having 60 per cent of the voting rights.

After managerial relations broke down, the father and son were dismissed for gross misconduct and ceased to be directors. They launched proceedings under Section 994 of the Companies Act 2006, alleging that their minority interests had been unfairly prejudiced by the group's conduct of the company's affairs and that they had been unjustifiably excluded from the company's management.

The group, however, counterclaimed that its interests as a member of the company had been unfairly prejudiced by the father's and son's gross misconduct. It was argued that their exclusion from the company was justified. Both sides agreed that the group should buy out the family shareholding, but the Court was asked to resolve certain legal and factual issues that would greatly affect the price payable for those shares.

The Court found that the father and son had been excluded in accordance with the company's articles of association and that their dismissals were justified. The father had failed to disclose to his fellow directors that the family business was engaged in a serious dispute with HM Revenue and Customs in respect of non-payment of import duty and VAT.

The father had also failed to disclose that the family business, and latterly the company, had participated in so-called black fishing – a procedure whereby catches of fish are underdeclared in order to evade quota restrictions or import duty. Those, and other instances of misconduct, had unfairly prejudiced the group's interests and it was entitled to bring a claim for breach of statutory duty against him. If not agreed in the light of the Court's ruling, the value of the family's minority shareholding will be assessed at a further hearing.

The contents of this article are intended for general information purposes only and shall not be deemed to be, or constitute legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article.