Failure to pay the required deposit and lapse of the court-ordered management audit

Issue

The director and majority shareholder of a textile manufacturing group found himself in conflict with a minority shareholder, who had obtained a court order for a management audit concerning the conduct of the company’s affairs. This measure exposed the director to a judicial review of his management, at the initiative of the minority shareholder.

Challenges

The challenge for the director lay in the scope of this management audit. Once implemented, it would have given the minority shareholder detailed access to the running of the company’s affairs, in a context already marked by a dispute between the shareholders. It was therefore necessary to prevent the measure from taking effect. The solution lay in the procedural framework governing its implementation: the claimant must deposit the funds intended to cover the costs within the time limit set by the court.

Solution

Rather than challenging the merits of the management audit on its substance, Cahn Wilson focused its objections on the conditions under which it was to be implemented. Having established that the minority shareholder had failed to deposit the funds within the time limit set by the court, a condition that was, however, necessary for the measure to be carried out, it secured a court ruling declaring the management audit lapsed, thereby bringing the measure to an end before it had even been implemented.