Legal Question in Business Law in United Kingdom

Directors duties to shareholders

Shareholder sold shares to a Company Director. Valuation based on Directors own valuation of the assets which he had provided to Company's accountant. After sale, shareholder discovered Director had witheld and in fact denied a particular fact - land owned by company was under offer to a property developer - which led to a substantial undervaluation of assets and hence value of shares.

Would the deliberate falsification of a set of circumstances which produced a false valuation and which caused the shareholder to sell shares at a substantial undervalue be an abuse of the Director's responsibility to the shareholders.


Asked on 8/12/05, 11:39 am

1 Answer from Attorneys
Richard Howard Richard Howard & CO

Re: Directors duties to shareholders

The principal civil claim would be for misrepresentation brought under general law against the director concerned for damages. Since you have sold the shares unless you are able to rescind the sale agreement a shareholders action would not be applicable.

However, in addition to the civil claim, in the case of a share purchase, the seller may be liable under section 397(1) of the Financial Services and Markets Act 2000. Under this section, it is a criminal offence for a person, broadly, to conceal information or make misleading statements in order to induce another party to enter into an investment agreement (which would include an agreement to buyer sell shares). The offence carries an unlimited fine and/or seven years' imprisonment. There is no civil remedy based on this particular section and so you would have no right of action for contravention of it but the threat of reporting it to the authorities might encourage the Seller to settle the civil claim.

The strength of you claim depends on the nature of the misrepresentation and what evidence there is of the misrepresentation.

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Answered on 8/17/05, 12:28 pm


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