April 27, 2020
It is inevitable that in private companies disputes and deadlock situations may arise from time to time between the parties. This problem is likely to be exacerbated by the Covid-19 situation and the knock-on effect upon the economy. These disputes can be both expensive and stressful in personal terms.
However, we at Prosperity Law LLP have considerable experience in resolving matters at an early stage with a view to minimising conflict.
If there has been a breakdown in communication and in the relationship between the parties who are the shareholders/directors and the result is a deadlock in the running of the company and its business on a day to day basis then there are a number of aspects.
- Any Prior Documented Agreement between the Parties
In many cases, the shareholders enter into a Shareholders’ Agreement contemporaneously with commencing business. Such Agreements often contain workable provisions relating to dispute resolution and may, for example, provide for one party to buy the other party out and indeed, there may be a similar provision in the company’s Articles of Association. Therefore, the first port of call is to see whether or not there are any ancillary documents or Shareholders’ Agreement which might impact upon the situation.
- Settlement by Negotiation
This is in practical terms likely to be difficult to achieve for the simple reason that most shareholders place a higher value on their shareholding than may in fact be the financial reality when the business assets and the business profitability is taken into account. However, to avoid escalating costs it is always advisable to seek to negotiate in good faith to see whether the problem can be resolved.
- Third Party Resolution of the Dispute
The parties may well consider it to be cost effective to seek to refer the dispute to an independent third party i.e. a mediator. The mediators are generally very experienced in work of this nature and the whole mediation process can be very cost effective – often resulting in a settlement being reached at the end of the mediation. In the writer’s experience, mediations in most cases generally last an entire day and in the writer’s experience, they have resulted in settlement being reached at the end of that day’s mediation.
- Court Action
This obviously is a course of action available to the parties and it could include, for example, an injunction, a claim for unfair prejudice, or in some cases the Court being asked to force one party to buy the other out or the company itself placed into liquidation, its assets realised, its debts paid and any residue paid over to the shareholders.
- Pre-Litigation Offer to Settle
In disputes of this nature it is highly advantageous to be able to show that you have made a genuine and positive effort to resolve the dispute before Court proceedings arise. In that connection we are very experienced in making settlement offers and drafting Settlement Agreements.
The above is a brief synopsis of the remedies available and, as is the case in many disputes, prompt and early reference to us at Prosperity Law, with our range of expertise and experience, is advisable and we are more than willing to assist in these trying times.