FW: To what extent are you seeing an increase in the number of shareholder disputes in your jurisdiction? What are the main drivers of such disputes?
Maples: For as long as companies exist and allow those who own and conduct business through them the advantage of limited liability, there will be shareholder disputes. Such is human nature. Typically, disputes between shareholders arise when there is disagreement as to the company's strategy, or when an investor wishes to sell his shares or considers that his interests are being unfairly prejudiced. And sometimes, perhaps more frequently than we care to admit, shareholders simply fall out with each other. In England, disputes of this kind between shareholders in private companies have long been the subject of litigation. This continues to be the case. In recent years, as procedural developments combine with the consequences of financial crises and scandals, there has also been a growth in shareholder disputes in the public company context.
Finkler: There has been a growing appetite for shareholder action in the UK in recent years. This is driven, in part, by developments in both the legal market – with third-party funding now being much more readily available – but also a greater awareness of shareholder rights, with high-profile celebrity campaigns given a taste of the impact they might have. That said, I am not sure the number of 'traditional' shareholder disputes has actually increased, and growing investor activism might actually have resulted in more deals behind the scenes rather than full-blown proceedings. However, the one area where there has been a dramatic increase in the number of shareholder disputes is in the group or class action space, which was more or less non-existent 10 years ago. This is driven by the 'virtuous circle' of perceived huge claim values, new funding options available to claimants and the growth of boutique 'claimant' firms.
Reed: The nature of shareholder disputes is continually evolving. Historically, the big drivers for shareholder class action lawsuits in the US have been a poor business climate, the company's release of unexpected bad news, industry-wide scandals, and the announcement of a fundamental transaction such as a merger. The considerations that drive these traditional shareholder lawsuits have not changed fundamentally in recent years. What has changed is the level of shareholder activism. While disputes with activists often take place in the corporate arena, we have seen many of them spill over into litigation. That trend seems likely to accelerate in the coming years. In private companies, shareholder disputes tend to be related to the health of the business climate. Shareholders are more likely to look for or pursue potential issues in distressed companies. Not surprisingly, we have seen a significant uptick in shareholder disputes involving Texas energy companies in the last several years. Many disputes in private companies arise from miscommunications or misunderstandings about the shareholders' respective roles in the organisation. But in my experience, shareholder disputes arise most often when a shareholder believes that someone is receiving improper or disproportionate benefits from the company or when a minority shareholder is looking to sell his or her interest.
Walton: The last few years have definitely seen more of shareholders holding their boards and majority shareholders to account. As a general rule, times of recession or economic uncertainty give rise to an increase in litigation, simply because parties are no longer able or willing to meet their contractual or financial obligations; shareholder disputes are no different. It should therefore not be surprising if the economic uncertainty surrounding Brexit leads to a further increase. Shareholder frustration at lack of growth or poor performance obviously increases the prospect of direct action against majority shareholders, the company and even of derivative actions. Similarly, when a joint venture encounters difficulties or performs poorly, its shareholders frequently clash about the direction or management of the company, or the failure or inability of one or more of them to comply with their joint venture obligations.
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Previously published in Financier Worldwide
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