Two categories of dispute
Of course, there is a final category of businesses that are poorly run. These businesses often have unresolved longstanding issues that result in a disputes, or series of disputes, leaving shareholders with little option other than to take legal action to protect their interests.
Generally, shareholder disputes fall into two categories: when the majority shareholder is blocked by minority shareholders from implementing a particular course of action; or a minority shareholder being pressured by a majority to accept things they do not agree with. There are also particular difficulties for those companies where the shareholders have reached deadlock.
Each dispute between shareholders is unique in its own way, but the key questions remain the same for all companies;
- Is there a shareholders’ agreement in place?
- What rights are provided by the articles of association?
- What were the parties’ expectations or understandings at the time the company was established and/or shareholders became members of the company?
- What is the real root of the dispute, and what do the parties want to achieve?
We have considerable experience of a wide range of disputes, for example,
- where parties are being excluded from the management;
- where they disagree over how matters should be taken forward;
- where they feel a company is being run to the benefit of individual members of the company excluding them;
- where there has been a breakdown or deadlock between the parties so the company cannot operate; or
- where the parties wish to go their separate ways.
Ideally, a shareholder dispute should be managed without recourse to full litigation, not least as it can lead to considerable expense and disruption for the business. This is where our expertise is invaluable; we have an excellent track record of settling disputes to the satisfaction of both parties. However, if the case does lead to court, we will protect our client’s position vigorously.
Whether you are a majority or minority shareholder it is crucial to understand what you can and cannot do and what options the other shareholders may have to stop you doing what you wish.
Key issues a shareholder must consider are:
- Is your company a quasi-partnership? Quasi-partnership disputes are a unique form of shareholder dispute. If a company has been formed on the basis of mutual trust and confidence between individuals, and all individuals expect to participate in the business, you may have a quasi-partnership – please see our article on quasi-partnership disputes.
- Unfair prejudice. An unfair prejudice petition under the Companies Act is a mechanism for a disadvantaged minority to seek to resolve their dispute. Broadly, if a business is being conducted in a manner that is unfair and prejudicial to the interests of a minority shareholder, they can take steps to petition the Court to correct that conduct. Please see our article on unfair prejudice for more information.
- Winding-up a company – where a company reaches a complete deadlock a winding up on just and equitable grounds can often be appropriate. In addition to reaching a position of deadlock, another reason for winding up a company could be because it can no longer fulfil its original purpose, for example, if a company was established to exploit a particular opportunity and that opportunity no longer exists.
Successfully resolving shareholder disputes requires flexibility and an understanding of the dynamics driving it, such as the involvement of third parties or a change in company relationships over time, Finding a resolution to a dispute requires an a degree of creativity which must reflect the nature of the business.