Limited Liability

[UncleEbenezer]

There's a discussion happening here (on TLF) in which shareholders in a limited company are raising concerns that they might become liable for legal costs.

I always thought limited liability protected shareholders from any bills beyond the value of their shares, and that such protection (for shareholders who are not directors or managers) was absolute. Have they found an exception, or is their concern pure FUD?

If it's FUD, clearing it up quickly could be of significant public benefit. There's an upcoming shareholder vote, in which directors accused (by sharesoc among others) of serious malpractice are aiming to close the door on investigation of their actions.

[Dod101]

There appear to be several entities here, the original liquidators Begbie, the new liquidators Menzies, the shareholder action group and the VCT itself.

The action group appears to have appointed its own solicitors and are bringing an action against Begbie (the grounds do not matter in order to answer the question) Obviously the action group has incurred costs and someone will have to pay but the solicitors acting for them will presumably have these in some way secured. Whilst the action group will want as many shareholders in the original VCT as possible to vote in favour the question seems to be 'Will I as a shareholder in the VCT incur additional costs if I vote in the action? '

Limited liability only applies to actions by the original directors of the VCT not to an outside action group. Whether or not the original shareholders can legitimately vote with the action group surely depends on the terms of the action group itself. They may be happy for all and sundry shareholders to vote with it and if they do that without any pre conditions (such as a contribution towards their costs) then I cannot see that anyone voting for and with the action group will incur any liability. That though has nothing to do with the concept of limited liability in company law; it is down simply to the terms of the agreement to form the action group.

Shareholder action groups seldom succeed in my experience but provide a nice income for the lawyers appointed to act for them

Dod

[GoSeigen]

There's a discussion happening here (on TLF) in which shareholders in a limited company are raising concerns that they might become liable for legal costs.

I always thought limited liability protected shareholders from any bills beyond the value of their shares, and that such protection (for shareholders who are not directors or managers) was absolute. Have they found an exception, or is their concern pure FUD?

If it's FUD, clearing it up quickly could be of significant public benefit. There's an upcoming shareholder vote, in which directors accused (by sharesoc among others) of serious malpractice are aiming to close the door on investigation of their actions.

I agree with Dod. Who is taking the legal action? If it is the shareholders then they are not the company and so will be liable for any costs they incur. If it is the administrators on behalf of the company (acting legally and in the interests of the creditors) then that is a different matter.


GS

[smilingpolitely]

Please disregard the notion that the limited liability of shareholders is "absolute". It is not. It is only "what happens in the ordinary course of events". It is a good enough rule for investors buying tiny slivers of quoted companies. But there are many ways in which a shareholder can become liable to pay money over and above the value of their shares.

The courts have powers under section 51 of the Senior Courts Act 1981 to order just about anybody to pay the costs of litigation. Known colloquially as a "third party costs order", they are meant to be an exceptional order. I doubt voting that merely voting for a resolution to pursue litigation would engage the court’s power. But a person who funds litigation in which they have a direct benefit is often considered fair game if the funded party can’t pay the costs.

The solicitors putting the litigation scheme really should have a plan or some kind of insurance policy in place, not least because the first action of the defendants will likely be to threaten and then make an application security for costs.

[88V8]

...a person who funds litigation in which they have a direct benefit is often considered fair game if the funded party can’t pay the costs.

That's interesting.
I sometimes chip in to fund cases through Crowdjustice https://www.crowdjustice.com/cases/?filter=good%20law%20project&page=2 but they tend to be climate and planning issues. Hadn't realised there might be additional costs exposure if one has personal involvement in the underlying case.

V8