Resolving a shareholder dispute over company mismanagement

4 August 2026

Shareholder disputes can arise for many reasons. If you as a shareholder believe that the company is being mismanaged, this can be a source of serious concern and frustration. This is especially so if you are a minority shareholder and you feel that you have no control over how the business is run.

Mismanagement can cover a wide range of concerns, but essentially it relates to a failure by directors or senior management to run a company properly, or lawfully, or in the best interests of the company and its shareholders. However, all shareholders have remedies to bring directors or other shareholders back into line if you have legitimate concerns.

If you think your company is being mismanaged it can be difficult and frustrating to try to get it back on track. There are often personality issues going on under the surface that make resolution difficult without independent outside help.

We look at what happens when a company is mismanaged, and what options shareholders have to change the position if they believe a company is being mismanaged.

Common examples of company mismanagement

Common examples of company mismanagement are often centred around financial mismanagement. This can cover situations such as poor financial control by failing to maintain proper accounting records, or failure to pay taxes and meet the company’s obligations to HMRC. Slightly harder to prove, but also quite common, is general financial and cash flow mismanagement, including causing the company to trade without adequate financial planning and controls.

More serious financial mismanagement may involve the misuse of company funds, such as using company money for personal or unauthorised purposes, or using company opportunities for personal benefit. The entrepreneur Robert Maxwell famously used the Mirror Group pension to misappropriate hundreds of millions of pounds for his own ends.

Directors owe certain statutory duties under company legislation which, if breached, may amount to mismanagement. For example, failing to exercise reasonable care, skill, and diligence expected of a director, or failing to act in the company’s best interests.

If directors do not have adequate internal controls this can in turn lead to fraud or misconduct by employees. An example of this was in the case of Barings Bank, which collapsed in 1995 after trader Nick Leeson accumulated huge unauthorised losses. It was found that senior management and directors had failed to implement adequate internal controls and oversight.

Other common examples of mismanagement include:

failure to hold proper board meetings or keep minutes;
ignoring shareholder rights or failing to follow the company’s articles of association;
disposing of company assets for less than their value;
ignoring employment law obligations (e.g. minimum wage, discrimination, or unfair dismissal issues);
entering into a major transaction without proper due diligence or approval; or
allowing significant deterioration of the company’s assets or business operations.

What legal options does a shareholder have if they believe the company is being mismanaged?

In an ideal world shareholders and directors would meet regularly, and they would be aligned in their strategy and direction to achieve the desired results. Unfortunately, this is not always the case. Shareholders might be excluded from information or from decision making, as may some directors. Small companies and family run companies can suffer from a dominant director or directors who might exclude others while they make poor decisions.

The first thing to do is to look at the documents governing the company, such as the articles of association and shareholders agreement, to see if legal terms are being breached. These can be key in establishing what remedies might be available to enforce certain actions for you as a shareholder. For example, the right to be provided with regular financial information, or to have a veto on key decisions.

These documents should set out how the company should be managed, and how shareholders should be treated.

If a shareholder believes that the directors are mismanaging the company in some way, there are several options open to them. If terms of a shareholder agreement or the company’s articles have clearly been breached, then a shareholder can bring an action against the company or a particular director. The remedies available will depend on the type of mismanagement. For example, if a shareholder believes they are being prejudiced personally, they may seek damages. If the director is mismanaging the company more generally, it may lead to the removal of that director or changes to stop further mismanagement and rectify damage caused.

How this action should commence is often set out in the shareholder agreement itself, which may suggest some form of alternative dispute resolution such as mediation or arbitration, before resorting to court action. Even if there is no shareholder agreement, there are options through the court process available to shareholders who believe the company is being mismanaged.

Unfair prejudice claim

If a shareholder feels that the mismanagement by a director or directors has caused them to be prejudiced, then that shareholder can bring an ‘unfair prejudice’ claim to court. This might occur, for example, where two shareholders have fallen out, and the majority shareholder removes the minority one from the board.

The aggrieved shareholder would need to show that they have been unfairly prejudiced by the actions or inaction of the directors, and evidence will need to be provided of this. If successful, the court can make any order that it thinks is appropriate. This might be by ordering the company to pay compensatory damages to a shareholder for any loss suffered. If that is not going to rectify the situation, the court might order the company to purchase that shareholder’s shares, to release them from their shareholding at a fair market value.

Derivative action

A shareholder also has the option to bring a derivative claim in court, which is a claim brought by a shareholder against a director on behalf of the company. This might be appropriate if the director has acted negligently, or in breach of their duties to the company. An example of this might be if a shareholder diverts business away from the company to another entity they control.

The company must have been prejudiced overall by the action, or inaction of the director, not only one particular shareholder.

It is a fairly complicated process, so not a first choice, but it is a good option for a shareholder who is worried about how the director or directors are dealing with the management or strategy of the business.

If the court finds mismanagement by the directors, then it can make any order that is appropriate for the company to rectify the position.

Just and equitable winding up

If other remedies are exhausted, then it is possible for a shareholder to apply to court to request that the court wind up the company on just and equitable grounds. This is a last resort however, as it is so final for the business. The company is immediately shut down, and everything distributed by a liquidator in a particular statutory order.

As this is such a final option, it may only be granted in certain circumstances by the court. This is likely to be suitable if there is a deadlock which means the company is unable to reach any other solution. The court will also consider the requirements of all parties when making their decision, including for example whether this might prejudice creditors.

How can we help?

If you have concerns, it is important you take legal advice as soon as possible to determine what your options are. Our solicitors can work with you to approach the director or directors to remedy the situation. It is always best to try to do this outside of the court system first if possible. We can help you negotiate or use an alternative dispute resolution method if appropriate, or ultimately to apply to court for a remedy. These situations can quickly escalate where personalities may collide, and the use of a third party to settle matters is often the only way to achieve results.

If you believe your company is being mismanaged and have concerns, it is important that you consult an expert to ensure that a solution is sought as soon as possible, ensuring the least damage is caused to all parties.

Our solicitors have many years of experience in this area. For further information and assistance, please contact Antonella Gottuso in the dispute resolution team on 01291 639280 or antonella.gottuso@feakes-legal.com