Minority shareholders: How far do your rights extend?

Minority shareholders: How far do your rights extend?


Author: Janine Esbrand

In the recent case of Eckerle and others v Wickeder Westfalenstahl GmbH and another, the High Court examined whether minority shareholder protection afforded by the Companies Act 2006 extends to a holder of beneficial interest in shares.


  • DNick Holding plc was a public limited company incorporated in England and Wales. It was managed and operated in Germany and had shares listed on the German stock exchange
  • The share capital of DNick was held by just two shareholders, one of which was the Bank of New York Depositary (Nominees) Limited (BNY). BNY acted as the common depositary agent, holding shares on trust for the holders of accounts with Clearstream, a clearing and settlement division of Deutsche Borse
  • Mr Eckerle and two others (the claimants) held ultimate economic interests in the underlying securities of shares held by BNY in DNick
  • Following the passing of a special resolution, the listing of DNick's shares on the German stock exchange was cancelled, and DNick was re-registered as a private limited company
  • The claimants alleged that their aggregate beneficial interest in DNick's shares, gave them standing to apply under section 98 of the Act for cancellation of the resolution for DNick's re-registration as a private limited company¬†

Rights afforded by section 98

Section 98 provides that an application can be made to cancel the resolution for re-registration by the holders of not less than 5% in aggregate of the nominal value of the company's issued share capital.

This is an important protection for minority shareholders, particularly of listed companies, where re-registration removes the liquid market for, and restricts the transferability of, their shares.

However, the application may not be made by a person who has consented to, or voted in favour of, the resolution.

The judgment

The High Court held that the claimants did not meet the required 5% threshold. In the Act, a "holder of shares" is one whose name is entered on the register of members. This did not include a person holding the ultimate economic interest in the shares.

The judge acknowledged this was not a particularly comfortable conclusion and that his reading of the Act did deprive the claimants, as indirect investors, of the sort of protection which those who formulated the Act thought ought to be extended to minority shareholders. However, to reach any other conclusion would be "an impermissible form of judicial legislation."

Further, the judge commented that the proceedings would not be saved by joining BNY (whose name is entered on the register of members) as a party to act on the claimants' instructions, since it had voted in favour of the resolution.

What does this mean?

Indirect investors cannot, themselves, bring an application to cancel the re-registration of a public limited company to a private limited company.

The registered holder of the shares may be able to bring the application under section 98 on the direction of the investor, but as is often the case in nominee arrangements where shares are held on behalf of a number of different investors, the registered holder would not be able to make the application if it has voted both for the re-registration on behalf of some investors and against it on behalf of others.

Case: Eckerle and others v Wickeder Westfalenstahl GmbH and another [2013] EWHC 68 (Ch)