Removal of director for employing wife and sister was unfair

The High Court has ruled that a company acted unfairly when it removed a director without offering to buy his shares.

The case involved a director who entered into a partnership agreement with other shareholders in 2000 to acquire and run care homes.

The business was incorporated in 2004. In 2012, the shareholders removed him as a director and employee of the company on grounds which included abuse of power in relation to the employment of family members. They did not offer to buy his shares.

The director claimed that his exclusion was unfairly prejudicial to his interests as a member of the company. The shareholders submitted that the relationship of mutual trust and confidence had broken down.

The court ruled in favour of the director. It said that employing his wife and sister in breach of the company agreement was not sufficient reason to justify his exclusion without an offer to buy his shares.

Despite their discovery of that situation in 2009, the shareholders had chosen to do nothing for several more years. They had also signed off the company accounts and therefore ratified the payments to those employees. None of the allegations concerning the director’s conduct justified his exclusion while leaving him locked into the company.

Please contact Sarah Liddiard if you would like more information about the issues raised in this article or any aspect of company law.