The Privy Council in Tianrui (International) Holding and others [2024] has confirmed that a minority shareholder has a right of action against the company. This allows them to challenge the allotment of shares by the board of directors on the basis that the allotment was made, for an improper purpose, in circumstances where the allotment will cause detriment to the shareholder.
The basis of the shareholder’s right to bring an action against the company is implicit in the contract constituted by the company’s articles of association, which contains the implied term that the directors will exercise their power to allot shares in accordance with their fiduciary duties.
A breach of this implied term by the directors in improperly allotting shares gives rise to a personal claim by the shareholder against the company, even though the directors’ fiduciary duties are owed to the company and not to individual shareholders.
a shareholder has a personal claim against a company when the directors of the company exercise their powers for an improper purpose. More specifically, the Board confirmed that such a claim may be brought by a minority shareholder in circumstances where the directors have allotted shares for the improper purpose of diluting that shareholder’s voting power, thereby facilitating a takeover of the company.
This is a landmark decision confirming the rights of shareholders, including minority shareholders, to prevent improper exercises of power and oppression by a company. It confirms a shareholder’s ability to bring a personal claim against the company for declarations or injunctions to prevent conduct in breach of a company’s articles of association, without the need for a derivative action.