A critical element of having a shareholder’s rights protected is how their exit rights are defined. In a publicly listed company, an aggrieved shareholder can simply sell their shares through the Stock Exchange to quit their shareholding in the company. However, it’s not quite so straightforward and simple for minority shareholders to dispose of their shares in a private company. This is particularly so if the company’s Constitution limits its shareholders’ ability to sell or transfer their shareholding. Hence, exit clauses are commonly included in the Shareholders’ Agreement to enable all private company shareholders to sell their shares and quit the business in a way that is equitable for all the company’s shareholders. Exit Strategies For Minority Shareholders Are you…

INTRODUCTION One way of dealing with difficult shareholder disputes is to have an independent party control and sometimes deal with the company assets, while the dispute is worked through. This allows the parties to focus on the dispute without further issues arising from current trading. Such a reliable independent party is a liquidator (solvent liquidation). CASE STUDY We were appointed by the High Court as liquidators of a solvent company to resolve a shareholder impasse. Two shareholders owned 70% and 30% respectively of the company shares. The companies only asset was its ownership of all the shares in a trading subsidiary company. The directors were in dispute on the management of this company. The liquidators needed to control the subsidiary…

Shareholders are the foundation of our listed company system. One of the key protections given to shareholders is the right of minority shareholders to be treated on an equal footing to majority shareholders. Under section 174 of the Companies Act of 1993, every minority shareholder in a company has the right to seek relief from the court if it feels its rights have been unfairly prejudiced or if they believe the officers of the court have been conducting the affairs of the company in a manner that is oppressive, unfairly discriminatory, or unfairly prejudicial to the interests of the shareholder."The Institute of Directors’ guidelines says “Directors should ensure fairness to all shareholders in disclosure of information, general communications and in…

It seems like a typically Kiwi thing to do - a couple of mates decide to go into business together and start up a company to operate the business.  Everything is split down the middle - each director owning 50% of the shares and all agreed on a handshake. What could go wrong? The recent liquidation of a small business shows just what can happen.  Things went well for the first couple of years.  Business was going okay and making a small profit but then things started to go wrong. The relationship broke down between the shareholders and got to the stage where they couldn't agree on anything to do with the business including staff management and business direction. Legal…