The Death Of A Shareholder And Rights Of Action By The Estate

• Published date: 19 May 2023
• Subject Matter: Corporate/Commercial Law, Corporate and Company Law, Directors and Officers, Shareholders
• Law Firm: Myerson Solicitors LLP
• Author: Myerson Solicitors LLP

Shareholder disputes are a common issue in the world of business.

These disputes can arise for various reasons, including disagreements over the company's direction, disputes between shareholders, and issues related to succession planning and the death of a shareholder.

One area of shareholder disputes that can be particularly complex is the area of unfair prejudice and derivative actions.

In this blog, we will explore the legal issues surrounding these types of disputes, the options available to executors of an estate and the estate's ability to bring a claim as a shareholder.

We will also provide a summary of the decision in AMT Coffee Ltd; McCallum Toppin v McCallum Toppin & Others [2019] EWHC 46 (Ch).

Unfair Prejudice and Derivative Actions

When a shareholder feels that they have been unfairly prejudiced by the actions of the company or its directors, they may be able to bring a claim for unfair prejudice.

Unfair prejudice can occur in several different ways, including:

• excluding a shareholder from management decisions;
• refusing to pay dividends;
• diluting a shareholder's stake in the company; and
• failing to follow proper procedures for shareholder meetings.

If a shareholder can demonstrate that they have been unfairly prejudiced, the court may be able to order the company or its directors to take certain actions to remedy the situation.

Derivative actions, on the other hand, allow shareholders to bring claims on behalf of the company against its directors for breach of duty.

This can include claims for breach of fiduciary duties, negligence, or other types of misconduct.

Succession Planning and Death of a Shareholder

When a shareholder dies, it can create several issues for the company and its remaining shareholders.

If the deceased shareholder is a key player in the company, their absence can create a power vacuum that can lead to disagreements and disputes among the remaining shareholders.

In addition, the deceased shareholder's estate may need to be involved in the company's affairs.

If the deceased shareholder had a significant stake in the company, their estate might be entitled to a say in how the company is run.

Options Available to Executors of an Estate

If you are the executor of an estate that includes a stake in a company, you will need to consider your options carefully.

One option is to sell the shares in the company, either to the other shareholders or an outside buyer.

Another option is to hold onto the shares and take an active...