Minority Shareholder, Asset Sale and Oppression
Zephyr Foods Ltd has 100,000 shares. Ade holds 30,000; the Okafor brothers hold 70,000 and control the board. For two years no AGM has been held. The company is profitable but no dividend has been paid; the brothers pay themselves ₦4 million monthly as 'consultancy fees' without board approval. In January 2024, Zephyr sells its distribution arm to a company owned by the brothers for ₦50 million, though an independent valuation puts it at ₦180 million. Ade's request for audited accounts is refused; a general meeting is called on 24 hours' notice to approve the sale. Ade has no board seat and cannot convene a meeting. Ade wants to stop the sale and exit. The company's articles adopt the CAMA 2020 model, and Ade has never been sent minutes.
1. Can Ade challenge the sale of the distribution arm, and on what basis?
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Yes. The sale is a related-party transaction between Zephyr and a company owned by its controlling directors. The brothers have a conflict and must disclose it; the board's approval is tainted if they voted or used their control. The price is only ₦50 million against an independent valuation of ₦180 million, which is evidence of unfair prejudice and possible breach of fiduciary duty. Ade cannot sue simply because the company suffered a wrong: the proper plaintiff is the company (Foss v Harbottle). But she can rely on the exceptions: fraud on the minority, breach of directors' duties, and acts requiring a special majority. She can also petition for relief against oppression under CAMA 2020, seek a derivative action, or seek a just-and-equitable winding up. The 24-hour notice for the general meeting is also likely invalid; check the articles and CAMA 2020 notice requirements. She should seek an injunction before the sale completes.
2. What reliefs should Ade seek and what practical difficulties must she anticipate?
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She should seek: an injunction restraining completion; a declaration that the sale is void or voidable; an order setting aside the transaction or requiring restitution; an order for an independent valuation; accounts and inquiries; an order regulating the company's affairs; a buyout order at fair value; and, alternatively, a winding-up order on just and equitable grounds. She may also seek an order that the brothers repay the consultancy fees and any diverted profits. Difficulties: she is a minority and may lack funds; the company may argue the sale was a board decision; she must prove the valuation and the brothers' interest; the court is reluctant to wind up a profitable company if a buyout is available; and any delay may make the sale irreversible. She should consider a without-notice injunction only if urgency and full disclosure justify it, and she must give an undertaking in damages.
3. What procedural steps should Ade take before filing a petition?
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She should obtain the company's registers and minutes, demand audited accounts, and write a formal letter to the board setting out her objections and asking for the sale to be halted. She should check the articles for transfer restrictions, notice periods, and quorum. She should convene or requisition a general meeting if she can meet the shareholding threshold; if not, she should attend the 24-hour meeting and object on the record. She should gather the independent valuation and evidence of the brothers' ownership of the buyer. She should consider a derivative action demand on the board and, if refused, apply for leave. Before a winding-up petition, she should explore a buyout or mediation; courts prefer remedies short of liquidation. She must also ensure the company is served and that any application is made in the proper Federal High Court division.