Shareholder Agreement Restrictive Covenant
Posted On April 12, 2021
Therefore, the clause that those who fall within the definition of the salaried shareholder remain below their limits until they have more shareholder activity and twelve months later should be correctly interpreted. This interpretation was consistent with the transmission provisions of the sections, since a person who was no longer the director, staff or agent would no longer be a shareholder very quickly. According to the Court of Appeal, a sensible person would have read these provisions in this way. There was no question that S had not yet concluded the transfer of its shares in this case. The period and the broader regime should continue to be assessed on the basis of adequacy, taking into account the overall context of the shareholders` pact, or remain applicable in another way. GSW has lodged an appeal with the Court of Appeal, as the restrictive agreements of the shareholders` pact are enforceable. With regard to the relevant clauses of the shareholders` pact, the Tribunal found that there were two issues to be resolved: the setting of an excessively long period of time to reduce competition after termination is deemed unenforceable by the courts. To determine the reasonableness, the court will consider the relationship between the parties: it is a fixed principle that the court will be more severe in its relations with an employer-worker alliance than a federation negotiated in an economic context between two experienced parties. This is a difficult result, especially since, in practice, the prospect of jailing a shareholder for a long period of time, or even indeterminate, is not so unlikely, as most mandatory delegation provisions are not mandatory from the point of view of other shareholders who are required to acquire the shares. An unscrupulous employer or majority shareholder appears to have carte blanche by this decision to relocate the process of extending the duration of alliances.
Shareholders are listening! Similar agreements are often added to shareholder agreements reached when shares or stock options are granted to employees of a company. Agreements may impose restrictions while a person is a shareholder and for a later period. At trial, the High Court found that the restrictive agreements were unenforceable because they were longer than they were necessary to protect the legitimate interests of the business. The judge found that after considering the definition of the salaried shareholder, “if an employee, representative or director is no longer a salaried shareholder, he is no longer subject to the obligations on that date.” In applying the usual construction principles, the Court of Appeal defined the objective meaning of the terms used in the restrictive pact and examined them in relation to the real and commercial context.