Business relationships can, and often do, go wrong. Despite the best intentions of the parties, over time, trust may break down between shareholders and unless the parties have entered into a shareholders’ agreement that sets out various mechanisms for dealing with a dispute, disputes between shareholders can be very costly to the individual parties involved and destructive for the business itself.

Often shareholders are also directors of a company. However, this is not always the case and indeed is not a requirement. It is important that the company’s best interests are at the forefront of the minds of all those concerned. The success of a company can be dependent on a harmonious relationship between all its shareholders / stakeholders, and irreconcilable differences should be dealt with efficiently and effectively.

Shareholder disputes can range from conflict of interests arising, through directors breaching their statutory duties, to general boardroom disputes and more often than not, where there are minority shareholders, complaints arise that they are being ‘unfairly prejudiced’ by the actions of the majority shareholders.

Unfair Prejudice

A shareholder has the right to petition the Court if he feels what is happening within the company is ‘unfairly prejudicial’ to him. The test for unfair prejudice is an objective one. In order to establish unfair prejudice, it is not necessary to prove that the value of the shares has been adversely affected by the conduct. The Court has power to make any order that it sees fit if unfair prejudice is found, but often the outcome will be an order that the other shareholders are to purchase the shares of the complaining shareholder making the petition.

Examples of unfair prejudice include;

• Freezing out a shareholder;
• Non-payment of dividends;
• Abuse of power of directors;
• Exclusion from ongoing management of the business in a quasi-partnership.

It should be borne in mind that petitioning the Court can be an expensive option, which is why negotiation with the other shareholders at the earliest stage in a dispute, while difficult, is the preferred course of action and one that the Dispute Resolution Team at QualitySolicitors Oliver & Co. is able to advise and provide practical advice upon.

Whatever the reason, any issues between shareholders should be identified and addressed at the earliest opportunity to avoid incurring what could be considerable costs and potential harm to the company.

Sometimes such disputes simply cannot be avoided. Our team of specialist lawyers can help you negotiate an effective solution to your dispute. We will consider the available legal and practical commercial options to advise you on the best way forward.
At QualitySolicitors Oliver & Co the Dispute Resolution Team's focus is to resolve disputes quickly, enabling if at all possible the commercial relationships between parties to continue with the minimum of disruption. One of the ways in this can be done is through mediation. Mediation  is a common form of alternative dispute resolution whereby an independent and neutral Mediator is appointed by the parties to try to facilitate discussion and settlement. In many cases, mediation offers an opportunity to find flexible solutions to commercial disputes and, if successful, can achieve a cost effective outcome for clients.

For further advice and information on Shareholder Disputes and Mediation, other forms of alternative dispute resolution and the various services offered by the Dispute Resolution Team please use the contact form or call 01244 354667 and ask for John Loney.