Resolving Shareholder Disputes Over Rights Issues
14 Oct 2025
Author: Lydia Wawiye
Rights issues are a common way for companies to raise new capital by inviting existing shareholders to buy additional shares, usually at a discounted price. While this process can benefit the company and its shareholders, it sometimes leads to disagreements, especially if shareholders feel their interests are being overlooked or their ownership diluted.
Resolving these disputes quickly is essential to protect your investment and maintain company stability. Below, our Senior Associate Solicitor Lydia Wawiye explores the topic of rights issues, and the steps that directors and shareholders can take to protect both their and each others’ interests.
Understanding rights issues
A rights issue gives current shareholders the opportunity to purchase extra shares before they are offered to new investors. This is designed to protect shareholders against dilution of their ownership, allowing them to prevent new investors from taking a controlling stake.
Pre-emption rights, which are typically set out in a company’s articles of association or shareholders’ agreement, give existing shareholders priority when new shares are issued. Before any rights issue, it is vital to review these key documents to understand your entitlements, and any obligations you might have during a rights issue.
Directors’ duties and shareholder protections
Company directors have a strict legal duty to act in the best interests of both the business and its shareholders. If a rights issue is proposed, directors must ensure that all shareholders are treated fairly, and that no one is unfairly disadvantaged.
Failing to do so may result in claims of unfair prejudice, particularly if certain shareholders believe their shareholding has been unjustly diluted, or their rights ignored. This can lead to shareholders pursuing legal action, which in the worst case may jeopardise the existence of the business.
How to resolve rights issue disputes
Rights issue disputes can be disruptive and costly, in more ways than one. However, there are a clear series of steps you can take both before and after a dispute occurs—employing the rules and procedures laid out in your company documentation and business law.
- Check company documents: Start by reviewing the company’s articles of association and any shareholders’ agreement. These documents set out the rules for issuing shares and the rights of shareholders, and can help to resolve many disputes at an early stage.
- Seek consent: In many cases, issuing new shares may require shareholder approval before a rights issue can even take place. Make sure proper procedures are followed before doing this, and all necessary consents are obtained.
- Directors’ duties: Directors must always act transparently, and in the interests of all shareholders. If you suspect misconduct or unfair treatment has occurred, raise your concerns promptly, and seek clarification from the board.
- Engage in dialogue: Open communication between shareholders and directors often helps to resolve misunderstandings before they escalate. A rights issue dispute can often be driven by concerns that investors will dilute the ownership of existing shareholders, making it imperative that this concern is addressed and alleviated at an early stage.
Legal remedies for shareholders
In some cases, it may not be possible for directors to address shareholder concerns in the manner outlined above. If informal attempts to resolve a dispute are unsuccessful, shareholders have several legal options:
- Unfair prejudice claims: If you believe your rights have been disregarded or your shareholding unfairly diluted, you may bring a claim under the Companies Act for unfair prejudice. The shareholder must demonstrate that prejudice exists and that it is unfair.
The Court has broad discretion to issue any order it considers appropriate. This may include awarding compensation for losses suffered or, if necessary, requiring the company to buy back the shareholder’s shares at fair market value to release them from their shareholding.
- Derivative actions: Another option available to shareholders is to pursue a derivative claim through the courts. This type of claim is brought by a shareholder on behalf of the company, typically when the company has suffered harm as a result of actions taken by its management.
For instance, if directors have tried to reduce certain shareholders’ voting power—perhaps to make it easier for themselves to push through decisions that may not benefit the company as a whole, and which would normally be blocked by those shareholders—this could be grounds for a derivative claim.
The court must be satisfied that the directors’ conduct regarding the rights issue was not in the company’s best interests. Any remedy granted by the court will benefit the company itself, rather than individual shareholders. If the claim is successful, the court has the authority to make a range of orders, such as removing a director, awarding damages to the company, reversing improper transactions, or issuing an injunction to prevent further misconduct.
- Just and equitable winding up: This is a last resort, and the court must be satisfied that winding up the company is fair and appropriate in the circumstances. If there is a more suitable solution available, the court will generally avoid ordering the company to be wound up.
Typically, a shareholder must have held their shares for at least 18 months to apply for a just and equitable winding up petition, and the company must have enough assets to distribute to shareholders after winding up.
Why professional advice matters
Mistakes in handling rights issues or shareholder disputes can have serious consequences, including loss of investment or long-term damage to the company. Correcting them may not only involve negotiation or mediation, but also navigating the legal remedies available to shareholders.
Professional legal advice ensures your interests are protected, your options are clear, and your case is presented effectively. Our expert litigation team can guide you through every step, helping you make informed decisions and achieve the best possible outcome.
Book your complimentary initial consultation
If you are facing a shareholder dispute or have concerns about a rights issue, don’t leave matters to chance. Contact Parfitt Cresswell today to book your complimentary initial consultation with one of our experienced legal professionals. We’ll help you understand your rights, explore your options, and work towards a swift and positive resolution.
Get in touch:
Call us today on 0800 999 4437 or click on the button below to arrange your complimentary initial consultation with a member of our Dispute Resolution Department.
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