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Company Disputes, Shareholders’ Disputes, Shareholders’ Agreements and Directors’ Disputes

It is very common for disputes to arise over the direction and progress of a company. Deterioration in personal relationships, conflicts of interest – so where a director has an interest in another business – and lack of performance are all factors that can raise tension in companies. Where different people have different salaries or different priorities, this can all lead to conflict.  For example, if one director wants to keep the money in the company for future investment and another wishes to release the funds by way of dividend now, tensions arise.

A solution to these problems is to provide for disputes in your company’s constitution and/or in a Shareholders’ Agreement in advance of any disputes arising. This can save you a great deal of time and money.

You can ensure that the Articles and the Shareholders’ Agreement say that in the event of a dispute you should go to Mediation in the first place.

Mediation is a service we offer.

Participating in Mediation is often cost effective and can be organised very quickly, rather than a long drawn out process of litigation which tends to be expensive.

But if Mediation fails, the Articles of the Shareholders’ Agreement can impose an agreed mechanism for shareholders to resolve disputes around the company.

Commonly, in the Shareholders Agreement an aggrieved shareholder would have the right to require others to buy them out at a fair price.

Often there are pre-emption rights, i.e. one side must offer to buy the other side out.  Often the one offering the highest price can buy the shares of the other.

It is important to consider that a shareholder/director who works in the business is very likely to be an employee, even where there is no written contract of employment.

Employment rights will therefore apply as with any other employee.  Care needs to be taken to ensure that these rights are considered and settled as part of any final agreement.

Major decisions of a company are made by the directors in Board meeting, usually by a majority vote with the Chairperson having a casting vote in the event of a draw. The majority of the Board can usually force through any decisions. 

But these normal rules do not apply in some important decisions by the Board which need to be passed by a higher percentage than just a majority vote.  Sometimes there needs to be unanimity in voting. This is infrequently achieved.

All directors have legal duties and responsibilities owed to the company.  That duty is to act in the best interests of the company.  Breach of that duty could make the directors in breach personally liable to pay over damages which may include any profit they have made/reimburse the company for losses arising from the breach.

Usually, directors’ and officers’ liability insurance is taken out & the company may agree to indemnify directors against certain liabilities.


Breach of duties could include:

1.   Using company property for personal use.

2.   Diverting a contact that could have been won for the company to another business owned by the director without prior approval of the shareholders.

3.   Failing to keep a minimum threshold of duties required, e.g. the Finance Director fails to keep proper accounting records or monitor the company’s solvency.

4.   Failing to comply with the Constitution, e.g. the Articles of Association or the Companies Act by, for example, not declaring an interest in a proposed contract or a proposed partner.

5.   Where a director hasn’t acted properly in his capacity as a director, it is possible for someone else to apply to the court for permission to bring an action on behalf of the company. This is called a derivative action.

Even if you have control of the Board, you may still be vulnerable unless you have control of the shareholders’ meeting.  This is because some matters cannot be decided by directors alone.

Shareholders’ decisions often require different majorities and frequently a simple majority isn’t enough.

Where one block vote has the majority shares, this can often act against the interests of minority shareholders. 

Minority shareholders themselves have significant remedies if they have been “unfairly prejudiced” or it is “just and equitable” that the company be wound up.

Getting embroiled in these sorts of actions is both time-consuming and expensive.

Usually the biggest danger to a shareholders in dispute is that they are taken to court on the grounds that the company’s affairs are being conducted in a manner which is unfairly prejudicial to another shareholder’s interest. These are personal actions not brought by the company so you cannot stop one shareholder bringing these actions against you simply by the fact that you control the Board or the shareholders’ meetings.

These are expensive and are often a distraction from core business.

Company money cannot be used to fund the Defence in these actions and if you try to do so the other side may take out an injunction to stop you from doing so.

If an unfair prejudice claim is brought and succeeds, the court can grant any remedy it thinks fair and can include ordering one party to buy the other out.

In private companies, unfair prejudice actions are usually based on a failure to fulfil “legitimate expectations” of the aggrieved shareholder. So, for example, if it was agreed formally or informally that the company would carry on a particular business or the directors would be fair in setting salary levels in line with the company growth, then the court could intervene if these legitimate expectations are not met.

Courts have general powers to wind up a company on a shareholder application if it is just and equitable so to do.  As with an unfair prejudice action, this action cannot be stopped merely because you own a majority of the shares in the company and/or control the Board.