Preventing majority oppression in general meetings: the Court’s power to interfere with shareholder votes
In the recent decision of Pagden and anor v Soho Square Capital LLP and ors [2022] EWHC 944 (Ch), the High Court of England and Wales has considered the scope of its power to interfere with the votes cast by shareholders in a general meeting.
The facts of Pagden were novel. Three companies were dissolved following a voluntary liquidation and asset sale. The companies were subsequently restored and new liquidators appointed. These liquidators commenced proceedings against the former investment manager of the companies (and others) concerning the asset sale. A general meeting for each company was held to decide whether (1) each company should remain restored in order to pursue the proceedings and (2) the liquidators should remain in office. Each general meeting resolved in favour of the relevant company remaining restored, and two of the three general meetings resolved in favour of the liquidators continuing in office. In the third general meeting however, the manager and some of the other defendants to the proceedings commenced by the liquidators, who were also shareholders, cast their votes against the resolution, with the result that the liquidators would be replaced. These defendant shareholders claimed the liquidators to be lacking in independence and competence, and accordingly wished to replace them. In response, the liquidators sought a direction that would allow the votes of these defendant shareholders to be set aside.
There is an uncontroversial line of authority to the effect that a shareholder may generally cast his or her vote as he or she pleases. In Pagden, the Court held that, when determining whether it should interfere with the votes of the majority shareholders, it should consider whether: the majority decision has been brought about by unfair or improper means, fraud, or illegality; is oppressive (in the sense of abuse or unfair subjugation) to the shareholders who oppose that majority decision; and whether no reasonable person would consider that the shareholder’s vote was cast for the company’s benefit.
The Court decided against interfering with the votes of the defendant shareholders, with the result that the liquidators would be replaced. While the Court recognised this might appear “morally unattractive”, there was no oppression in circumstances where the new liquidators would decide whether to continue the proceeding, and that the additional costs would be met from a fund put up by one of the defendant shareholders.
