Revisiting Privilege in Shareholder Disputes

It is crucial to understand the extent of which shareholders hold their rights, find out here as we revisit the privilege in shareholder disputes in the UK and share the importance of business dispute solicitors.

The Rights of a Shareholder During Litigation Disputes

Shareholders in a company registered in England and Wales have a well-established right under section 994 of the Companies Act 2006 to challenge decisions of the company that have caused them unfair prejudice. 

Under the Act and in their capacity as minority shareholders, they have the right to bring a Petition against the company before the Court. These decisions can be challenged in circumstances where they have no power otherwise to impact on the way a company is operated. 

Accordingly, litigation between shareholders and director disputes is common and, technically speaking, in such proceedings the company must also be included as a party. 

Shareholder Dispute Solicitors Providing Documentation: The Rules

A question that has accordingly arisen in proceedings of this nature relates to litigation privilege and whether the company (effectively run by the directors/shareholders against whom the unfairly prejudiced conduct is alleged) can attempt to avoid providing documentation to the complaining shareholder. 

Legal professional privilege entitles a party to withhold evidence from production to a third party or the court. The question has often arisen therefore as to whether the company is entitled to claim privilege to justify a refusal to produce documentation.

The general rule, following a 2015 case, is that a shareholder is entitled to disclosure of all documents obtained by the company during its administration, including advice given by the company’s solicitors.

There has however, been a well-established exception where the advice given to the company relates to the actual or contemplated litigation taking place between shareholders. For such do, privilege does apply. 

Case Study: Criticization of the General Rule

In a more recent 2023 decision, the court has shown an indication to shy away from that analysis and criticised the general rule, particularly in circumstances where the foundation of that rule was based on the Court’s earlier suggestion that the relationship between a company and its shareholders was the same as between a trustee and beneficiaries. 

The courts have more recently suggested that this is not necessarily the case since a company is totally separate from its shareholders and where those shareholders, unlike beneficiaries, do not have any direct interest in the company’s assets. 

Both shareholders and directors who become involved in unfair prejudice litigation should therefore be aware that the disclosure obligations between the parties, and particularly on the part of the company, may become contentious particularly where sensitive or documents of a potentially confidential nature may be involved. 

How a Commercial Litigation Solicitor Can Help

Navigating the intricate and complex landscape of shareholder disputes requires a deep understanding of the legal navigation required, particularly in light of evolving privilege considerations.

Shareholders’ rights, enshrined in the Companies Act 2006, empower minority stakeholders to challenge prejudicial decisions as mentioned, yet the extent of document disclosure remains contentious.

While historical precedents established disclosure norms, recent judicial shifts, notably in a 2023 decision, question conventional analogies between companies and shareholders. 

This underscores the sheer valuableness of skilled commercial litigation solicitors who are able to competently navigate privilege cases. By leveraging their expertise, stakeholders can effectively assert their rights amidst evolving legal interpretations.

We proudly offer both commercial litigation solicitors in London, and commercial litigation solicitors in Manchester that provide expertise that are only of the best quality.

We have significant experience of acting for both shareholders and directors in Company related disputes including section 994 Petitions, so if you need help with your case in this area, get in touch with us to find out more information.

Frequently Asked Questions

What rights do shareholders have in litigation disputes under UK law?

Shareholders in companies registered in England and Wales possess the right, under section 994 of the Companies Act 2006, to challenge decisions causing them unfair prejudice. This empowers minority shareholders to petition the court, particularly in cases where they lack power to influence company operations directly.

Can a company withhold documentation in shareholder disputes based on privilege claims?

The issue of litigation privilege often arises in shareholder disputes, especially regarding documentation disclosure. While a general rule, established in a 2015 case, mandates disclosure of company documents to shareholders, exceptions exist, particularly concerning advice related to shareholder litigation. Recent judicial developments, notably in a 2023 decision, challenge this rule, emphasising the distinct separation between companies and shareholders.

How can commercial litigation solicitors assist shareholders?

Skilled commercial litigation solicitors play a crucial role in guiding shareholders through the intricate landscape of privilege in shareholder disputes. Their expertise enables them to navigate evolving legal interpretations effectively, ensuring that shareholders can assert their rights amidst privilege considerations.