Minority shareholder protection in takeovers : private actions
Traditionally, minority shareholders are said not to have the right, or the standing, to initiate proceedings against the controllers of the company, because in the eyes of the law the minority shareholders are said not to be the appropriate persons to bring such proceedings, except in the situation of first, fraud on the minority shareholders, and second, controllers' illegal, or arguable, ultra virus act. Such an approach substantially deprives the minority shareholders' of opportunity to have their grievances heard by the courts in takeovers, defined as transactions of corporate control. In turn, the controllers are allowed to ignore the interests of the minority shareholders in such transactions. Therefore, the protection of the minority shareholders and the investors in the capital market fails to be incorporated in the English legal framework for corporate governance. Although statutes were passed in order to remedy inadequate protection of minority shareholders, the judicial interpretation of these statutes also limits the situations where minority shareholders are entitled to the initiation of the proceedings. The remedies available to the minority shareholders are limited to buy-out remedy with a conservative approach in share valuation. The court should broaden the scope of the remedy available to the minority shareholders, including both interim and final remedies. The minority shareholders weakness, both in financial and substantive terms, should be considered against the strength of the controllers in the company. The evidence, knowledge, and sources obtained in administrative investigations or independent inquiries should be made available to the minority shareholders, whereby public and private enforcement would be able to work in tandem against the abuses by the controllers in takeovers. Finally, the appraisal right which is more commonly exercised in the United States should be granted more extensively to the minority shareholders in takeovers where traditionally such a right is not available where the company's shares are traded on national exchanges. The English legal framework should incorporate such a right and allow a more extensive application of it in takeovers, especially in friendly mergers.