There are great benefits in a shareholders dispute in acting early and taking professional advice, often we are called in at a late stage limiting the client’s options. For minority shareholder’s this advice is particularly apt, minority shareholders or 50/50 shareholders often give away their bargaining power too quickly and easily, if you are aware of impending problems with your fellow shareholder’s protect your position by taking some initial legal advice as soon as possible.
The longer you put off taking advice, the more time and money you will eventually spend sorting out the problem, and the more it will damage your business.
Common Shareholder Disputes
The list of shareholder disputes we come across is long and varied and these are some of the most common, generally speaking many of them stem from a breakdown in trust between the Directors, disagreements over the direction and development of the company, conflicts of interest between them etc. Examples include:
- Section 944 petitions (formally section 459 petitions)
- Breaches of directors’ duties
- Salary disparities between directors
- Derivative actions brought by shareholders
- ‘Unfair Prejudice’ proceedings
- Breaches of Shareholders Agreements
- Dividend Disputes
- Under performing Director or Shareholders
Many of these issues can successfully be overcome, sometimes by the parties themselves and sometimes only with the help of outside mediation. Rare indeed and possibly unique is the business in which shareholders have never quarreled or had disputes.
The most important thing is to recognize when a dispute has begun to have an ongoing negative effect on the performance of the business and/or your personal well being and then make rapid steps towards dispute resolution before further damage is done.
Minority Shareholders Rights
The majority of clients we represent in shareholder disputes are minority shareholders. Typical scenarios minority shareholders face are:
- Exclusion from the day-to-day management of the business
- Not receiving the dividends or profit share they are entitled to
- Fellow shareholders operating against their interests
The position and rights of minority shareholders are often difficult but under the Companies Act of 2006 they can have redress against majority shareholders if they have been subject to ‘unfair prejudice’ conduct by the company.
Examples of ‘unfairly prejudicial’ conduct would be:
- Exclusion from management in circumstances where there is a (legitimate) expectation of participation
- The diversion of business to another company in which the majority shareholder/s hold an interest
- The awarding by the majority shareholders to themselves of excessive financial benefits
- Abuses of power and breaches of the Articles of Association, repeated failures to hold AGMs; delaying accounts etc.
If an ‘unfair prejudice’ claim is upheld, the court can grant any remedy it thinks is fair. For example, it could order the company to buy the minority shareholders’ shares at a fair price and this is actually the most common outcome. If you are in this position it is important to take up to date advice when considering your options.
Settling Company Director Disputes – the Options
In simple terms you have 4 basic options:
- Negotiation between you and your business partners
- Independent mediation to solve the problem
- Out of court settlement
- Litigation and trial process
The first two options are generally the most preferable but the circumstances and best outcomes for each client will be unique to their own situation. Our solicitors will be happy to offer you full and honest opinion on what they believe will be your best course of action and share with you the likelihood of success and the cost implications for each possible course of action.