Law Commission plugs ADR for shares actions

The Law Commission is recommending changes to the law to make costly court actions by shareholders faster and cheaper and to encourage alternative dispute resolution procedures.

Shareholders who feel they have been wronged by the company in which they hold shares have at present only limited remedies – such as court action using the “unfair prejudice” clause of the Companies Act – which are “notoriously lengthy and costly” says the Commission, citing one case that lasted 43 days, cost £320,000 and concerned shares worth only £24,000.

In its first recommendations on core company law, the commission calls for a basic dispute resolution mechanism to be included in the statutory form of companies' articles of association. This means that shareholders will have pre-agreed routes to resolving disputes which avoid the courts.

The commission also wants courts to be given extra powers to manage cases, and calls on judges to use existing powers “more actively” so that cases are not dragged out.

And it wants statutory presumptions in unfair prejudice proceedings so that parties are encouraged to settle at an early stage.

The commission also calls for a new, clarified rule of court which will outline when “archaic” derivative action cases are permitted.

Mrs Justice Arden, the chairman of the commission said: “There are millions of people who have shares or have their pensions or savings in institutions which hold shares.

“We consider that our recommendations will modernise the remedies available to shareholders and make them more efficient and cost-effective.”