Minority Shareholders Protection In Cyprus - Remedies Available

There is no easy solution, to the problem, which follows from the principle of majority rule, in Company law, that of protecting the minority shareholders from violation of their rights.

A common scenario, is where a majority shareholder, treats the Company as his own, and acts accordingly, to the detriment of the other shareholders, or where there is a breakdown in the relationship of the shareholders or any of their number, which gives rise to questions about the future ownership and control of the Company.

REMEDIES AVAILABLE

Under Cyprus Law, the minority shareholders are afforded the following remedies:

(1) Personal Action

If the majority shareholders, violate a personal right of a minority shareholder, then he can file a personal action against the wrongdoers to rectify such a violation (i.e. violation of the articles of association of the Company or of the terms of any shareholder agreement etc.).

(2) Derivative Action

In certain circumstances, a minority shareholder, may bring a common law derivative action, on behalf of the Company, against the wrongdoers, who committed a wrong to the Company.

Wrongdoers can be shareholders and directors of the Company, as well as third parties. In order to be able to proceed with a derivative action at common law, the minority shareholder(s) must persuade the Cyprus Courts, that the Companys (that is the majority's) decision not to pursue a remedy for the wrong done to the Company, against the wrongdoers amounts to a "fraud on the minority" i.e. the Court must conclude, that the decision of the majority, was not made in good faith, and for the benefit of the Company, as a whole).

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