Routledge v Skerritt [2019] BCC 812

Key Point

  • In the absence of the board of directors adopting a formal  dividend policy, all classes of shares must be paid pari passu, to do otherwise amounts to unfair prejudice

Facts

  • The company had two classes of shares, ‘A’ and ‘B’ shares. 
  • The rights attached to the shares allowed for dividends to be paid on the ‘A’ shares in priority to the ‘B’ shares, but this depended upon the board of directors having adopted a “policy in relation to dividends
  • Over a period of many years the company paid substantial dividends on the ‘A’ shares, but no dividends at all on the ‘B’ shares. The board had never adopted any dividend policy and that, as a consequence, the default position was that the ‘A’ and ‘B’ shares ranked pari passu in respect of dividends.

Held (High Court)

  • The rights attached to the ‘B’ shares in respect of dividends had been breached, and that the majority shareholders (holders of the ‘A’ shares and the directors of the company) had thereby conducted the company’s affairs in a manner unfairly prejudicial to the interests of the holder of the ‘B’ shares.
  • Where rights in respect of dividends depend upon the board of directors adopting a dividend policy, the Court will seek to ascertain whether any such policy has actually been adopted by the directors; it will not simply infer the existence and terms of a policy from the company’s practice in respect of dividends.
  • As a matter of construction of the special resolution that created the ‘A’ and ‘B’ shares, that the ‘A’ shares’ preferential right to dividends could only operate if the board had adopted a board policy in respect of dividends. If no such policy had been adopted, then there was no basis for treated the ‘A’ shares any differently from the ‘B’ shares when it came to dividends. This was the “default position as a matter of law”, following Birch v Cropper (supra).
  • There was never any genuine consideration of what amount would reflect a reasonable level of his remuneration for his services to the company; nor was any consideration given to the ‘B’ shares.