How do you solve a shareholder or director dispute?
Seeking forgiveness is easier than seeking permission. True? Whilst this might be the case in some relationships, when it comes to disputes between directors or shareholders of a company, agreeing to disagree might not be so easy. Even a minor disagreement can escalate when the right strategy has not been put in place.
Why do shareholder and director disputes occur?
There are several reasons for disputes within companies and can be between:
- Shareholders (both minorities and majorities) in a company
- Disputes between Directors (and also their shareholders)
The nature of a shareholder or director dispute varies from business to business and can occur regardless of the size of the company, but typically the most common reasons include:
- a difference of opinion regarding the direction the business should take
- a fall out over the management
- conflicts of interest
- breach of a director duties (statutory and fiduciary)
- concerns regarding possible illegal or fraudulent activities by some or all of the board
- dividend distributions
The standard practice to deal with disputes is through the company’s general meetings and a first step would be to check any shareholder agreements that have been put in place. However, if this does not work, shareholders or directors could use alternative methods to address their disagreements.
Shareholder Agreements and Articles
Every business is different and requires processes and procedures that suit them and its methods. A well-drafted and robust agreement can regulate how business between owners and shareholders is to be run and can formalise the approach taken should the relationship break down or disagreements occur. However, these are not always in place.
Without a shareholders agreement, you will have to rely on the company’s articles of association or The Companies Act 2006. Still, it can be challenging to ascertain the rights of those involved. There is also the possibility of a deadlock, which is when shareholders/directors cannot resolve their issue because an equal number of shareholders are on the opposing sides of a decision.
Commercial Dispute Resolution and Mediation
Trying to seek a workable solution that avoids costly, time-consuming, and potentially damaging legal action is always advisable. Taking legal advice as soon as possible makes it more likely that negotiations between parties can resolve a dispute whilst still preserving your commercial interests.
Proceeding with some agreed form of alternative dispute resolution, such as mediation, could be your next route if negotiations between relevant parties have not worked. If disputes end up in litigation, a court will expect parties to have demonstrated they have first attempted to resolve their dispute via alternative dispute resolution. Courts will take a dim view of parties who simply litigate without any attempt to resolve the dispute informally first.
Shareholder and Director Dispute Solicitors
Finding a quick and amicable resolution will always be favourable. We will aim to resolve your dispute by negotiation or another form of alternative dispute resolution (ADR), to lessen the impact on you or your business and avoid Court and High Court costs. However, should this prove unsuccessful or unsuitable, our experienced litigators have the necessary expertise to represent you in the Courts.
Our specialist business law team at Jarmans can work with both shareholders and directors on all forms of commercial dispute resolution. Regardless of the complexity of your case, we will work with you to resolve these conflicts and deliver efficient, pragmatic, and cost-effective solutions tailored to your situation.