In the wake of the Thomas Cook collapse, we look at whether the shareholders of the company have a claim of ‘unfair prejudice’ against the Board of Directors for their misappropriation of funds and disproportionate salaries and bonuses, which saw their shares quickly de-value and the company ‘de-road’ off the market.
The travel agent announced in July that it was carving out a ‘rescue plan’ with its lenders and majority shareholder Fosun (Chinese international conglomerate and investment company), which would see the Chinese group take control of the business by contributing £450 million in exchange for a majority stake, which would wipe out the value of other shareholders’ stakes.
At the time, Thomas Cook commented that the plan would ‘result in a significant dilution in existing shareholders’ interests,’ but that it had decided it was the best way to secure the future of the group for all its stakeholders. Needless to say, this deal did not materialise and, on Monday 23 September, it was announced that Thomas Cook had been placed into immediate liquidation.
Directors under scrutiny
It was reported that some of the company’s top directors had been paid a combined total of £20m in salaries and bonuses since 2014, with the company’s Chief Executive, Peter Fankhauser, receiving £4.6m in bonuses since 2015. Speaking in the House of Commons on 25 September, the Shadow Transport Secretary, Andy McDonald, suggested that the bonuses were “undeserved and unwarranted”. Transport Secretary Grant Shapps suggested the bonuses should be seized and the directors be disqualified from serving as directors after the tour operator’s collapse: “There is also the Company Directors Disqualification Act 1986, and I fully support that idea,” he said.
Whilst penalising the directors by preventing them from acting as a director in the future would be a welcomed sanction by those seeking some form of retribution, the shareholders who own the company deserve answers and, where possible, recompense for this cavalier behaviour.
Claim for Unfair Prejudice
Unfair prejudice claims typically arise when majority shareholders or directors use or abuse their powers to promote their own interests to the detriment of the minority shareholders.
It is possible that the excessive remuneration and bonuses commissioned by the directors of Thomas Cook amount to a claim for unfair prejudice in favour of the company’s shareholders.
Typical situations in which the courts have established unfair prejudice include: misappropriation of funds, failing to award dividends, failing to consult or provide information to a shareholder, breach of fiduciary duties or articles of association. Whilst it is less typical for excessive remuneration or bonuses to amount to an unfair prejudice, a collapse of this scale justifies considering all areas of interest and consideration of the way in which this figure head of British travel companies came crashing to earth.
Of course, evidence will need to be drawn by the shareholders in order to substantiate any claim they make. Forensic accounting will be required in order to dig deeper into the company accounts to establish where any funds may have been misappropriated or incorrectly allocated, exactly when this happened, and how far back before the collapse did this occur?
Sadly, it is not just Thomas Cook shareholders who have fallen victim to financial loss at the hands of greedy directors as some 21,000 employees suddenly found themselves unemployed. If you are a shareholder and suspect either another shareholder or a director of your company is abusing their position for financial gain, you may have a claim and should seek proper legal advice. Our Dispute Resolution team in Mayfair is experienced in these kind of disputes and are happy to answer any questions you may have. To discuss this further, and find out whether you have a claim, please call 020 7016 9333 and speak to:
Daniel Gleek, Partner and Head of Dispute Resolution or via email DG@axiomstone.co.uk
Rachel Lester, Employment Solicitor or via email RL@axiomstone.co.uk
Article written by Katie Holloway