Directors’ duties and shareholder claims

The general duties which the directors owe are owed to the company and not to individual shareholders. 

These duties are set out in the Companies Act 2006 (“the Act”) and when those duties are exercised in a way which affects the interests of shareholders, disputes can escalate quickly into claims for unfair prejudice, derivative actions or other boardroom litigation. 

In many disputes involving private companies, the legal analysis may begin with the statutory duties which directors owe to the company under sections 171 to 177 of the Act. Those duties include, amongst others, duties to promote the success of the company; to exercise independent judgment; to use reasonable care, skill and diligence; to avoid conflicts of interest; to act in accordance with the company’s constitution and only to exercise powers for the purposes for which they are conferred.

In certain circumstances, for example where the company is quasi-partnership (in very broad terms, this is a situation where a personal relationship exists between the shareholders such as family-owned companies and where there is an understanding, or agreement, that the shareholders will participate in the management of the business), a shareholder may have a claim where his treatment by the other shareholders is considered to be unfair in light of understandings between the shareholders as to how the business is to be run even if those understandings have not been recorded formally in any documents such as the company’s articles of association or a shareholders’ agreement. 

What types of claims can shareholders bring?

Two common types of claim which shareholders can bring are unfair prejudice petitions and derivative claims. 

An unfair prejudice petition is a claim which a shareholder can bring to obtain a personal remedy for himself. A petition for unfair prejudice will arise where the affairs of the company have been conducted in a manner which is unfairly prejudicial to the interests of a particular shareholder or the shareholders of the company generally. 

A derivative claim, by contrast, is brought on behalf of the company for wrongs done to the company, usually by directors, and requires the court’s permission. The remedy sought in a derivative claim is for the benefit of the company.

The relationship between derivative claims and unfair prejudice claims has been considered in recent cases (e.g. in the cases of Gerard Chimbganda v Judith Kundodyiwa & Anor (Re Derivative Claim Goodpeople Health Care Ltd) [2025] EWHC 1543 (Ch) and Ntzegkoutanis v Kimionis [2023] EWCA Civ 1480).

In certain circumstances a shareholder may be able to bring both a derivative claim and unfair prejudice claim at the same time (as long as the remedies being sought in each claim are distinct). 

In other circumstances, a shareholder may be able to seek a remedy both for himself and for the company via a petition for unfair prejudice. An unfair prejudice petition cannot be used, however, simply to try and circumvent the need to obtain permission from the Court to pursue a derivative claim.

Common causes of shareholder disputes

The causes of shareholder disputes are numerous. In very broad terms, three common themes often recur. 

First, deadlock in management and exclusion from management: this is especially common in owner-managed businesses, quasi-partnership companies and 50/50 ventures where personal relationships have deteriorated and there is no effective mechanism for resolving strategic disagreement. 

Secondly, conflicts and self-interest claims often arise where directors are said to have preferred their own position to that of the company, for example by paying themselves excessive amounts; misusing company funds and exploiting business opportunities, of which they become aware through their role as a director, for personal gain.

Thirdly, valuation and exit disputes: where everyone accepts the relationship between directors/shareholders has broken down and is willing to find a resolution, the real fight can turn out to be about the price, timing and basis on which the shares of certain shareholders should be bought out.

Although it will often be the case that a shareholder will be complaining that the wrongful conduct of the directors has adversely impacted the value of their shares; a shareholder may have a claim if his rights have been disregarded even if he hasn’t suffered any financial loss. 

In the recent case of Saxon Woods Investments Ltd v Costa (Re Spring Media Investments Ltd) [2025] EWCA CIV 708, there was a clause in a shareholders’ agreement under which the shareholders had agreed to act in good faith to sell the company by a certain date. The chairman of the company took control of this process. He did not act in good faith in seeking to sell the business by that date and misled the board of the directors about what he was doing. 

The Court of Appeal in Saxon Woods Investments Ltd held that the chairman’s conduct did give rise to claim for unfair prejudice:

• irrespective of whether the company could have been sold by the relevant date even if the chairman had complied with the terms of the shareholders’ agreement; and consequently
• irrespective of whether or not the shareholder had any suffered any financial loss as a result of the chairman’s conduct. 

This was on the grounds that the chairman’s conduct had unfairly deprived the shareholder of the opportunity to sell his shares by that date.

Practical steps which directors can take

There are several steps which directors should consider taking to try and minimise the risk of getting involved in lengthy and costly shareholder disputes. These include ensuring that there are well-drafted articles of association and shareholder agreements in place and that good corporate governance is followed at all times. Amongst other matters, the roles and responsibilities of each director should be clearly defined; thought given to agreeing sensible exit provisions before any dispute arises and board decisions should be properly documented. 

For more information regarding Boardroom Disputes in Private Companies, please join our experts Robert Parks and Hannah Butler, together with Tom Wacher of Kreston Reeves LLP who specialises in forensic accounting and business valuation, at our Webinar on 3 June 2026.

Details on how to attend can be found here.