Shareholder disputes

Shareholder disputes are costly to the business and stressful for the individuals involved in them but the participants can be helped through the process by their advisers and ultimately by recourse to the courts if there is no other option. Any mechanism used to resolve the dispute, including the courts, should be focussed on a quick and economic resolution.

From time to time businesses will suffer from the effects of internal disputes. These include:

1. Those in effective control syphoning off cash or failing to properly account;
2. The failure to provide information or dividends to minority shareholders;
3. The exclusion of minority shareholders from management;
4. The hijacking of the business from silent partners by active directors;
5. Provision of excessive salaries to majority shareholder employees of the company;
6. Self-interested non-arms-length dealings including discounted assets sales;
7. Related party dealings;
8. Improper use of assets by controlling directors;
9. Removal of directors of minority shareholders;

Bransgroves Lawyers emphasise the need, from the outset, of having a true understanding of the commercial issues at stake. Only then can we use our sizeable experience and legal knowledge to provide carefully devised strategic approach which our client is comfortable with. From the outset, we insist that both ourselves and our client are unanimous on the outcome envisaged. Once this is determined our clients may decide they require:

1. Representation while negotiating the valuation and sale of your shareholding, or a court order, to allow a just and equitable winding up of the company to enable you to recover your investment.
2. The recovery of monies fraudulently syphoned off by the director/s in control of the bank accounts.
3. Mediation of disputes with the help of representation, followed by the implementation of a well drafted shareholder agree.

Shareholder’s agreements

Going into business with others is the commercial equivalent of getting married; and the divorces which follow can be just as destructive of the interests of all involved as a marriage breakdown. However, unlike a marriage it is all about money, so nobody should be offended by the proposition that a binding pre-nuptial agreement (shareholders' agreement) be implemented. A shareholders’ agreement sets out how disputes are to be resolved before they occur. It should provide structures, mechanics and reporting requirements that prevent disputes from arising in the first place. Finally, it should include the formula for a fair demerger or buyout in the event of an irreconcilable breakdown in relations between the directors.

Nor is it just at the outset that we can help in drafting shareholders' agreements. Often the best way to resolve a dispute is to focus on the future, putting in place a well drafted shareholders agreement, this often leads to a reconciliation whereby the current dispute is effectively subsumed. This is because most disputes come about because:

1. There is no written agreement that clearly set out the responsibilities, duties, remuneration for work, profit sharing and capital requirements of the partners/directors/joint venturers;
2. Only one partner or director has access to the payment of accounts and a mechanism to account or review payments, or to revolve responsibilities does not exist;
3. There is no formal mechanism in place to authorise larger payments, expenses, and undertakings;
4. There is no formal mechanism to keep everyone involved in the loop about decisions being made;
5. No distinction has been made between the salary and the profit sharing component of directors' remuneration;
6. There is confusion regarding the status of monies injected into the venture by shareholders, whether they are loans (on what terms), capital injections (with what benefits), guarantees or securities given (with what compensation);

Most shareholders disputes get worse if nothing is done, leading to the destruction or loss of the mutually owned asset. So do not prevaricate longer, call us today for an obligation free confidential discussion of your problem.