Routledge v Skerritt [2019] BCC 812

Court: High Court

Facts: The company had two classes of shares, ‘A’ and ‘B’ shares. The rights attached to the ‘A’ shares allowed for preferential dividend payments over the ‘B’ shares, contingent upon the board of directors adopting a “dividend policy.” Despite the lack of any such policy, substantial dividends were paid on the ‘A’ shares for many years, while no dividends were paid on the ‘B’ shares. The board never adopted any formal dividend policy, leaving the ‘A’ and ‘B’ shares to rank equally by default in respect of dividends.

Held: The rights of the ‘B’ shareholders regarding dividends were breached, and the company’s affairs had been conducted in a manner unfairly prejudicial to the ‘B’ shareholders.The preferential right of the ‘A’ shares to dividends only operated if a formal dividend policy had been adopted. Since no such policy was in place, the ‘A’ and ‘B’ shares ranked pari passu.

💡Leveluplaw: Without a clear dividend policy, preferential rights in share classes may not be enforceable, and default legal positions apply.