Boardroom and shareholder disputes can arise for many reasons. When they do it is important to understand the legal rights of all parties and the options available as well as the consequences of allowing things to get worse. However, there are some options which help to ease the situation.
Types of boardroom and shareholder dispute
• Disagreements over the direction and development of the company
• Poor personal relationships
• Conflicts of interest (because a director has interests in another business)
• Lack of performance on the part of one shareholder/director
• The terms of directors’ service contracts, or concern over whether the board is meeting its legal responsibilities
• Directors stopping money getting through to the shareholders (due to high salaries, or keeping money in the company when shareholders think it should be paid out as dividend)
Anticipating and providing for disputes can save you time, money and aggravation. Even if you don’t have a shareholders’ agreement it is often helpful to discuss in advance how the company is to be run and what each shareholder can do in various situations in the future. This future proofing can highlight potential difficulties at an early stage.
Articles or agreements usually say that in the event of a dispute, mediation should be used first. When using an independent neutral, mediation can help avoid a dispute escalating. If mediation fails, the articles or agreement may also set out a mechanism for the shareholders to part company.
Know your legal rights – Key questions are:
1. Are you (and your colleagues) in control of the board?
2. Have you acted properly as a director?
3. Are you in control of shareholders’ meetings?
4. Are there any restrictions on the way that shareholders can sell their shares?
What happens if you get it wrong?
Minority shareholders can make a procedural nuisance of themselves. They may allege that you have not acted properly as a Director. More importantly, shareholders have significant remedies if they have been ‘unfairly prejudiced’, or it is ‘just and equitable’ that the company be wound up.
Getting embroiled in any of these actions is both time-consuming and expensive. If there is a threat of any such action always take advice on your specific circumstances, in order to try and avoid it.
What can you do to protect yourself?
1. Understand what is important to the other party and why the dispute has arisen.
2. In the first instance, aim to negotiate, rather than rely on your strict legal rights.
3. Make a reasonable offer to the aggrieved shareholder.
4. Always take advice early to save cost and time.