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University of London Thesis REFERENCE ONLY UNIVERSITY OF LONDON THESIS Degree p K o Year l o o H Name of Author C C C ( ^ COPYRIGHT This is a thesis accepted for a Higher Degree of the University of London. It is an unpublished typescript and the copyright is held by the author. All persons consulting the thesis must read and abide by the Copyright Declaration below. COPYRIGHT DECLARATION I recognise that the copyright of the above-described thesis rests with the author and that no quotation from it or information derived from it may be published without the prior written consent of the author. LOANS Theses may not be lent to individuals, but the Senate House Library may lend a copy to approved libraries within the United Kingdom, for consultation solely on the premises of those libraries. Application should be made to: Inter-Library Loans, Senate House Library, Senate House, Malet Street, London WC1E 7HU. 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C:\Documents and Settings\lproctor\Local SettingsYTemporary Internet Files\OLK8\Copyright - thesis (2).doc MINORITY SHAREHOLDER PROTECTION IN TAKEOVERS: PRIVATE ACTIONS by Joseph C H Lee PhD Thesis Institute of Advanced Legal Studies University of London 2005 UMI Number: U215461 All rights reserved INFORMATION TO ALL USERS The quality of this reproduction is dependent upon the quality of the copy submitted. In the unlikely event that the author did not send a complete manuscript and there are missing pages, these will be noted. Also, if material had to be removed, a note will indicate the deletion. Dissertation Publishing UMI U215461 Published by ProQuest LLC 2013. Copyright in the Dissertation held by the Author. Microform Edition © ProQuest LLC. All rights reserved. This work is protected against unauthorized copying under Title 17, United States Code. ProQuest LLC 789 East Eisenhower Parkway P.O. Box 1346 Ann Arbor, Ml 48106-1346 DECLARATION I declare that the work presented in this thesis is my own. London November, 2004 1 ABSTRACT Minority Shareholder Protection in Takeovers: Private Actions PhD Thesis, Institute of Advanced Legal Studies by Joseph C H Lee There are limits on minority shareholders’ rights to initiate proceedings against the controllers (directors or controlling shareholders or both) of the company. Minority shareholders have traditionally only had rights of action on grounds of fraud on the minority, and directors’ illegal, and ultra vires acts. Minority shareholders have been deprived of the opportunity to have their grievances heard by the courts in takeover situations. This lowers the threshold of accountability of the controllers. Alternative models of control and accountability, the internal control model, the market control model, and the regulatory model, do not provide sufficient protection of minority shareholders’ legitimate expectations in takeover situations. Courts in England have been reluctant to recognise that the controllers of the company owe a fiduciary duty to the minority shareholders where change of corporate control is in question. Although statutes were passed in order to remedy the inadequate protection of minority shareholders, the judicial interpretation of these statutes imposes restrictions on the rights of minority shareholders to initiate court actions. The remedies available to minority shareholders are limited to the buy-out remedy often combined with a conservative approach in share valuation. Experience in other jurisdictions shows how shareholders there are entitled to a broader range of remedies in takeover situations. In England, however, neither the Human Rights Act 1998 nor the European Directive on takeover bids are likely to bring about significant changes in the range and scope of the judicial remedies available to minority shareholders. This thesis advocates the development of a private action model in English law. It argues that the area of fiduciary duties owed by the controllers of the company to the minority shareholders should be expanded. In a takeover situation, where change of control is in question, those who exercise actual control over the company should owe a duty to the minority shareholders to act fairly so as not to harm their legitimate interests and expectations. Furthermore, this thesis makes recommendations for the introduction of a pre-action protocol for shareholders disputes and the relaxation of the law on contingency fee arrangements in contentious matters. 2 TABLE OF CONTENTS Table o f Cases...................................................................................................................12 Table o f Treaties and Legislation..................................................................................... 23 CHAPTER I INTRODUCTION AND METHODOLOGY A. THE PROBLEM....................................................................................................... 28 B. SOCIOLOGICAL PERSPECTIVE........................................................................ 30 C. THE THEORETICAL BASES FOR THE PROTECTION OF MINORITY SHAREHOLDERS........................................................................................................ 34 D. FOUR MODELS OF CONTROL IN TAKEOVERS.............................................42 1. Internal Control Model ....................................................................................... 42 2. Regulatory Control Model................................................................................. 44 3. Market-mechanism Control Model .................................................................... 46 4. Private Action Model ........................................................................................... 49 E. STRUCTURE OF THE ANALYSIS....................................................................... 50 CHAPTER II CORPORATE CONTROL AND TAKEOVER A. INTRODUCTION..................................................................................................... 54 B. DEFINITIONS OF CORPORATE CONTROL.....................................................55 C. CATEGORIES OF CORPORATE CONTROL.................................................... 63 1. Family Control..................................................................................................... 63 2. State Control ........................................................................................................ 65 3. Stockholder Control............................................................................................ 67 4. Cross-holding Control......................................................................................... 68 3 5. Minority Control.................................................................................................. 69 6. Management Control ........................................................................................... 70 7. Committee Control .............................................................................................. 72 8. Supervisory Board Control.................................................................................73 9. Creditor Control.................................................................................................. 74 10. Coalition Control ............................................................................................... 75 D. CONSTRAINT.......................................................................................................... 77 E. LEGAL CONSTRAINTS ON CORPORATE CONTROL....................................81 F. DISADVANTAGES OF TAKEOVER...................................................................... 85 a ADVANTAGES OF TAKEOVER ............................................................................ 89 H. CONCLUSION.......................................................................................................94 CHAPTER III METHODS OF TAKEOVER A. INTRODUCTION.....................................................................................................96 B. TENDER OFFER......................................................................................................97 C. SHARE-FOR-SHARE BID FOR ALL..................................................................102 D. REVERSE BID........................................................................................................ 105 E. OFFER BY THE NEW COMPANY......................................................................106 F. OFFER BY SUBSIDIARY OR ASSOCIATED COMPANY.............................. 107 G. MANAGEMENT BUY-OUT.................................................................................108 H. PRIVATE SALE OF SHARES..............................................................................109
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