A recent case – Eckerle and Others -v- Wickeder Westfalenstahl Gmbh and Another  EWHC 68 (Ch)) – discussed the rights of unregistered indirect minority shareholders.
The case itself related to whether an unregistered minority shareholder (being a shareholder whose shares were held via the Bank of New York Depository (Nominees) Limited) could apply to court for cancellation of a resolution to re-register a public company as a private company.
The Claimants argued that they had the appropriate standing, on the basis that they could be classed as a member of the company pursuant to section 98 of the Companies Act 2006, which enables “the holders of not less in the aggregate than 5% in nominal value of the company’s issued share capital to apply to the court for cancellation’ of a special resolution passed to authorise the re-registration.
However, the case also comments more generally on who is, and who is not, a shareholder or member of a company (public or private), and therefore capable of exercising the rights of shareholders or members.
The court granted summary judgement in favour of the Defendants, thereby confirming the original special resolution to re-register the public company in question as a private company.
The court’s decision was on the basis that the Claimants could not be classed as members or shareholders (and therefore not “holders of shares’), and therefore could not be entitled to exercise the rights granted by section 98 of the Companies Act 2006.
Do unregistered indirect minority shareholders have any exercisable rights?
This case confirmed the general principle that companies do not have to recognise any equitable or other rights held in shares, and therefore indirect minority shareholders do not have any rights exercisable against the company itself.
Indirect minority shareholders can exercise rights against the company via their nominated registered holder, if appropriate provisions are included in the Articles of Association of the company via section 145 of the Companies Act 2006. Aside from that their rights are exercisable via the contractual relationship in place with their nominee or the nominated investment company – here the Bank of New York Depository (Nominees) Limited.
Clients should ensure that their arrangements with their nominee or the nominated investment company are sufficiently robust and allow them the level of control they require, even if their nominee or the nominated investment company hold shares on behalf of more than one investor/indirect shareholder.
Clients also need to make sure that they have an appropriate level of cover in the event that their nominee or the nominated investment company breaches the provisions of their contract, to the extent that a loss is suffered. The nominee or the nominated investment company should provide an indemnity in respect of those losses backed up by insurance.
For more information about Shareholders’ rights, nominee arrangements or for legal advice in relation to any company law matter, please do not hesitate to contact us.
By Debbie King, Company Law Solicitor