Shareholder and/or director disputes are common. The causes vary, ranging from personality clashes through to where majority shareholders deliberately act in their own interests, diverting business away, strategic disagreements, deadlock or where shareholders who are not directors are refused access to information.
We are highly experienced in dealing with shareholder and director disputes. As a court directed solution is highly expensive, slow and can result in huge damage or even the winding up of your business, any lawyers you instruct should seek to avoid this and they need to be experienced, commercial, creative and tactical.
Call or email us to find out why we have all these attributes and how our lawyers can help with your shareholder dispute.
Dispute? – check your articles and shareholder agreement first
Your company may have standard articles and either no or only a very basic shareholder agreement. If this is the case, it will probably make your dispute harder to resolve. If you do have amended articles and/or a detailed shareholder agreement, you should check whether it includes :-
- a process for dealing with a deadlock if you have a 50:50 shareholder structure
- Any clauses which protect minority shareholders
- a process for removing directors if directors are acting in an unfair or unlawful way
- whether there are enhanced restrictions and controls on the powers of directors to take on contracts, debt or make important decisions
- dispute resolution clauses – which clearly set out what should happen in the event of a serious dispute. These may include a valuation provision and a process where shareholders have the right or obligation to buy out others if there is a dispute.
If you have standard articles of association and either no shareholder agreement or only a very basic shareholder agreement, the legal grounds for court action are quite narrow. The main type of claim possibly available would be a claim for unfair prejudice. The second, more complex route is called a derivative claim, where action would need to be instigated in the name of the company.
It is important to be aware that if you are a minority shareholder this will generally complicate your position. With small private companies, the majority shareholders will generally legitimately be able to control the company at shareholder and often director level. This is why it is so important to negotiate protections for minority shareholders at the time of investing.
Possible outcomes of a shareholder and/or director dispute
Having dealt with many shareholder disputes we always advise clients that going all the way to a court trial is very expensive, risky and damaging to the company. A negotiated settlement is almost always better. The skill is generally in tactics and timing to obtain the best outcome for clients, always maintaining the pressure that the matter can go to trial if necessary.
Common ways to find an acceptable outcome include :
- splitting the business assets – rarely an ideal solution and complicated and messy and likely to cause damage to the future prospects for all concerned.
- one party buys the other out – this may also involve negotiations around deferred payment to the departing shareholder or some form of inducement for the departing shareholder to benefit from future success without remaining as a shareholder. Sticking points will also generally include valuation of the business and the shareholding of the shareholders who would need to depart to resolve the dispute. Valuation can be done in numerous ways and will generally be an expensive exercise involving expert advice from accountants and others.
- negotiating enhanced protection and rights – this may mean alterations to the articles or a new or amended shareholder agreement protecting the concerned shareholder in future by way of enhanced blocking or veto rights, better access to information, a clear process for future disputes, enhanced anti-competitive restrictions.
- removal of directors – or amendment or enhanced restrictions on or oversight of a director or directors.
- sale of the business – to an independent buyer
Shareholder disputes Solicitors in London
We are highly experienced in dealing with shareholder disputes and helping clients get the best available outcome where a dispute arises. Please do get in contact.
