SHARING A GOOD READ

by Phillip Taylor MBE, Abbey and Richmond Chambers,. Malet Street Gazette Barrister Desk Editor

When I reviewed the fourth edition for 'The Barrister' magazine in 2004 we were awaiting new legislation. This fifth edition, of what we now know as ‘Shareholders’ Rights’ by Robin Hollington QC arrives at just the right time for many would-be investors after the changes brought about by the Companies Act 2006 are being digested.  The work is presented to highlight the way in which the law on shareholders’ rights has developed and is clearly the leading work in its field today in its expanded updated form. It is also the one place to turn to for students studying Company Law so that they can find out what the law says and how it has been applied and has the authority which those seeking a 'First' would need to enhance their marks. 

Hollington is just the man for this task as a high profile QC specialising in all aspects of company law, insolvency and financial services law. His task, with this new edition, has been to expand the original work which was entitled “Minority Shareholders’ Rights”.  Specifically, there are newly amended chapters on the duties of directors and foreign companies.  In addition, many of the chapters have been re-written with more recent information and cases and explanations of the new legislation.

Of importance to many readers will be the detail of the “unfair prejudice” remedy which has also been expanded. The author covers and examines the implications of some of the new cases which have been decided since the last edition in 2004 including Re Chime Corporation Ltd, Blackmore v Richardson, Grace v Biagioli and Re Titanium Electrode Products Ltd.

STRUCTURE OF THE BOOK

“Hollington on Shareholders’ Rights” has had to change again and it now contains fourteen chapters with two appendices.  It begins with an introduction and broad principles including the meaning of a separate legal personality, and he states the rule in Foss v Harbottle.  The book then covers the following headings:

·                    the bargain between shareholders

·                    directors’ duties

·                    majority rule and equitable constraints

·                    the rule in Foss v Harbottle and the exception thereto: the derivative claim

·                    the unfair prejudice remedy: principles

·                    unfair prejudice 2: remedies

·                    unfair prejudice 3: practice and procedure

·                    winding-up on the just and equitable ground

·                    personal rights of shareholders

·                    foreign element

·                    limited liability partnerships

The main appendix (Appendix 2) contains litigation precedents which contain, amongst other things, drafts of derivative claims, a Wallersteiner costs indemnity order, and a draft Tomlin Order.

CORPORATE GOVERNANCE

Some eminent members of the Judiciary have contributed to the various Forewords of this work in the past.  Lord Hoffmann kicked off the first edition with a generous summary saying ‘the emancipation of minority shareholders is a recent event’.  Quite! 

The work then moves rapidly forward with comments by Hart J in the Third Edition where the learned judge says that the prediction of when an English court will protect the rights of a minority shareholder presents ‘many interesting and difficult problems’. 

In the 1999 edition, Hart J acknowledged that Hollington had increased the number of newly-reported cases and described the book as ‘the indispensable tool of the litigation lawyer’, recommending it as ‘an invaluable aid both for litigators and ADR practitioners’.  It has gone from strength to strength since then.

For the fourth edition, the Right Honourable Lady Justice Arden DBE commends the book to all readers, writing that it is ‘not so much about how to run company meetings or appoint and remove directors or matters of that kind as about how to manage disputes’. This statement goes to the core of Hollington’s achievement because what most of us need to know is the provision of an open-textured remedy to resolve shareholder disputes (the “unfair prejudice” remedy).

THE FIRE-BREATHING DRAGON

Derivative claims have now been placed on a statutory footing under Part 11 of the new Act and they came into force on 1st October 2007.  This enables shareholders acting on behalf of their company to call directors to account when they have acted in breach of their duty.  I was particularly amused to re-read the colourful comment made by Lord Hoffmann when describing the rule in Foss v Harbottle as “a fire-breathing and possibly multiple-headed dragon” in the fourth edition which conjures up some rather startling imagery.  I would agree with Arden LJ that the case will almost certainly be consigned to the history books to be replaced by a section number, and I am looking forward to seeing what happens next! 

SHAREHOLDERS’ RIGHTS IN 2008

It is refreshing to read that Hollington does not necessarily agree with some of the comments which have made in the flurry of  consultation papers and reports concerning the restrictive nature of the House of Lords decision in O’Neill v Phillips.  Indeed, as the expert, Hollington described the case as a decision on its own facts.  He suggested that whilst O’Neill v Phillips emphasises the primacy of the role of the law of contract covering the relationship between individual shareholders which, by definition will be restrictive, it does leave open the door for the protection of minority shareholders where there has been a breach of a fiduciary duty by directors, or where, as he puts it ‘there is room for a creative application of traditional equitable principles derived from the law of partnership’. We will all look forward to seeing the effects of the new Act in the coming years as they become apparent to us.

FOREIGN JURISDICTION AND SECTION 994

Of particular significance to many readers is chapter 12 on what is termed the ‘Foreign Element’ and section 994. This chapter was doubled in length for the fifth edition from just six pages to cover the new section.  The detailed citation of Konamaneni v Rolls-Royce (Industrial Power) India Ltd now includes Reeves v Sprecher.  It is quite possible that future editions will find this area of particular importance as companies continue to become more global, both with their endeavours and their membership.

THE SEVENTEEN “BROAD PRINCIPLES”

Robin Hollington’s aim with the new edition has been to take the opportunity to reduce the subject matter he is dealing with down to what he terms seventeen broad principles.  These ‘broad principles’ do give the book a firm structure, and are clearly of assistance to the busy practitioner who may well only want an overview of the field in which he or she is briefed.

The main new area of interest for practitioners and students is concept of "enlightened shareholder value", sometimes called "corporate social responsibility" or "CSR". The additional chapter on limited liability covers new areas including responsibility towards the "community" and the "environment".  As the author says, the paramount or overarching objective of the directors of a company remains with the new Act to promote "the success of the company for the benefit of its members as a whole" and he now goes on to say that "environmental and community considerations only form part of whir a director ought to consider as a matter of good practice in reaching a decision in good faith having regard to that paramount objective". Hollington doubts that the 'cultural' change in a company's operations will make any difference in practice in the future but we shall have to wait and see and it is certainly an academic issue for all practitioners.

‘Shareholders’ Rights’ succeeds in blending the seventeen broad principles of managing the shareholder’s position within a company with a precision and ease which will benefit all who read the book and I am sure they will find the new commentaries on the 2006 Act invaluable as we get to grips with the new consolidated legislation which places directors' duties on a new statutory footing.    

January 2008