COURT OF APPEAL
Minority shareholders angry with the conduct of their company have limited rights of redress other than to sell their shares for whatever price they can get. One of the few weapons at their disposal is the minority oppression action which empowers the Court to issue buy-out orders (at a price set by the Court) where the minority has been unfairly prejudiced by the majority. This power is contained in Section 111 of the Bermuda Companies Act, 1981 and its English equivalent is Section 994 of the English Companies Act, 2006.
There are few instances of successful minority oppression actions even against private companies. Against listed companies, the number of successful petitions drops to zero.
This is why the 2015 first instance decision in Annuity Re -v- Kingboard  SC (Bda) 76 Comm created a stir. It was the first known case anywhere of a minority oppression petition succeeding against a listed company. The Bermuda Supreme Court (Bermuda’s first instance court) had ordered that minority shareholders could sell their shares at a price to be set by the Bermuda Courts rather than the market price on the exchange. More importantly, the Bermuda Supreme Court had ruled that a company had a duty to negotiate with its minority shareholders about operational issues which impacted the minority.
Legal commentators were right to suggest that the decision represented a potential shift in power dynamics. Activist investors were invited to sharpen their spreadsheets:
“Kingboard provides encouragement to sophisticated, activist investors who are looking for a means of further shifting the balance of power in their direction, particularly those professionally engaged in the investment business.”1
This shift in power dynamics has however proved a false dawn. The Bermuda Court of Appeal has overturned the decision in Kingboard and reasserted traditional notions of a company’s relationship with shareholders.
1Butterworths Journal of International Banking and Finance Law, Issue 3, March 2016.