Business disputes are inevitable. It is important that disputes can be resolved without causing any damage to the company.
Common disputes include shareholder disagreements, disqualifications of directors, and board deadlocks. While most of these can be resolved quickly, others could become more difficult and may lead to the company’s demise.
Shareholder Disagreements
The common ground of disagreement between shareholders is the stockholder. Each shareholder will have their own expectations and may even have different opinions about the company’s future. Common shareholder disputes include:
Management disagreements
Distribution of dividends and company development
Minority shareholders are entitled to respect
Personal problems that can impact the business
Shareholder agreements are essential for avoiding and anticipating disputes. Every company should have one. It is a contract that all shareholders agree to regarding how they will work together and their relationship with management. Also, it outlines the actions to be taken in the event of a dispute. It is difficult to determine the rights of individual shareholders without a Shareholder agreement. The company may consider holding a general assembly to resolve the issue, reviewing the Articles of the company, or appointing an advisor. The company can also consider mediation or negotiation if the problem does not go away.
Disqualification For Directors
The Director of a company must ensure compliance with all laws and regulations. They also need to ensure that the company uses the appropriate skill and care and fulfill its responsibilities. Director disqualification can be a result of failing to fulfill their legal responsibilities.
Anybody can report a director as “unfit”. Any action that is considered a failure to comply with legal obligations can range from continuing to trade in a company in debt to spending company money for personal gain.
However, insolvency does NOT automatically disqualify a director. Instead, a director must carefully examine the reasons for liquidation and where the money went. The Insolvency Service may investigate. If they believe that a director has not met their legal obligations, they may initiate court proceedings. The director can then defend themselves or give The Insolvency Service an undertaking to disqualify them. The disqualification can last up to 15 years.
Shareholder Deadlock
Unanimity can lead to a deadlock in companies where directors have an equal shareholding. A company that has two directors with a 50% shareholding each and who disagree on the matter is an obvious example.
First, look at the Articles. Any of the following may be included in the Articles:
A casting vote clause – In the event of a deadlock, a casting vote can be used to elect a chairman.
Conflict of Interest – A director could have a conflict of interest in the matter and, depending on the Articles of a company, may not be eligible to vote.
Delegation of decision-making power – The board could delegate some of its decision-making powers to either a group or an individual director. This would allow the board to take decisions in the event of a deadlock.
Shareholding – shareholders can intervene if there is no resolution to the Articles. In the event of a deadlock, if one director holds a larger share of the shares, their vote will determine the outcome.
Directors should be reminded that they may have personal guarantees that provide some relief from the deadlock if none of these options work. Directors are responsible for any outstanding liabilities if the company closes.
You can visit our website for more information on dispute resolution lawyers in Perth.