Blog: Damages for the oppressed?
Stephen Keogh, managing partner and commercial solicitor at Keating Connolly Sellors, writes on compensation under section 212 of the Companies Act 2014.
The introduction of the Companies Acts 2014 under Section 212 introduced a novel change whereby minority shareholders have a clear right to seek damages in a situation where they have been oppressed or the conduct of the company was not in their best interest.
Section 212 of the Companies Acts 2014 derives itself directly from Section 205 of the Companies Acts 1963. Whereas both sections are broadly similar the introduction of the compensation payment to the minority shareholder has somewhat changed the landscape.
Up until the introduction of the 2014 Act, Judges had the power to grant wide-ranging orders in favour of the oppressed minority shareholder, however, they had to stop short of awarding damages.
The level of damages that a minority shareholder can expect in these cases cannot be estimated, due to the infancy of this Act. What has become clear is the approach that has been adopted by the Courts and the respondents in these actions is one where the acknowledgement of the alleged oppression is a recommended course of action, as opposed to a full defence. Due to the risk associated with a large award of compensation, in tandem with the traditional orders granted under the pre-existing elements of Section 212, this has brought about the situation where respondents in these actions are accepting oppression, in exchange for a waiver on the part of the applicants with respect to a claim for damages.
Due to the lack of clear precedents as to how Courts are treating these applications and due to the increased protection that has now been afforded, additional confidence has now been given to minority shareholders in these actions.
For companies, the onus has never been greater to ensure high level of corporate governance is at all times maintained internally. By doing so, the exposure to any company is significantly reduced.
It had been commonplace for the remedy to be awarded in these actions as being the purchase of the minority shareholders shares, at the agreed market value. Introducing an additional payment for damages under the 2014 Act has significantly transformed the outcome of these disputes. Furthermore, the ultimate payment to the minority shareholder by way of consideration for their shares and the resulting damages, introduces an additional taxation consideration for practitioners in this area.