Shareholder relationships have been likened to a commercial marriage with similar personal and financial stress resulting from a relationship breakdown. To prevent serious damage to the management and long term success of the company, shareholder disputes need to be addressed immediately.
Common causes of shareholder disputes include:
- disagreements over the direction and strategy of the business
- conflicts of interest, especially if directors have other business interests beyond the company
- remuneration of directors and terms of service
- decisions to retain money in the company and not pay the dividends some shareholders believe ought to be paid.
Ideally shareholders should anticipate what to do in the event of a dispute by placing suitable provisions in the company’s Articles of Association or a Shareholders Agreement. We can advise you if you do not have a shareholder agreement in place.
If a dispute does arise and cannot be resolved informally, you need to be aware that company law can have serious implications on your company’s arrangements. This makes it imperative that you take legal advice as soon as possible as knowing your legal position will almost always improve your ability to negotiate an acceptable settlement.
You will need to establish the following to determine the strength of your position:
- Do you have control of the board?
- Are you in control at shareholder meetings? Different majorities are required for different decisions
- Are you acting in a way that does not unfairly prejudice the rights of any shareholder? Failing to do so could provide grounds for a successful court action by an aggrieved shareholder.
- Have you acted properly as a director? Failing to do so could render you personally liable to the company.
Be aware that an aggrieved shareholder can also bring an action to wind-up the company where it would be ‘just and equitable’ to do so. The courts are keen to encourage settlement of disputes and, if you have made a reasonable offer to buy out the shares of the aggrieved party, it will not be just and equitable to wind up the company. The courts have issued guidelines on such offers and we will be able to advise you further.
There are alternatives to going to court. Alternative dispute resolution, most often by mediation, is a more cost and energy efficient method of resolving many disputes than litigation.
Our dispute resolution team will advise you on the most appropriate course of action for your particular circumstances.
If you wish to discuss matters further please contact Roger Wilkinson
The contents of this article are for the purposes of general awareness only. They do not purport to constitute legal or professional advice. The law may have changed since this article was published. Readers should not act on the basis of the information included and should take appropriate professional advice upon their own particular circumstances.