All new business ventures start with optimism and an expectation of success. And after initial stresses, good business ideas are generally rewarded. But in the life of any business, no matter how successful, there are ups and downs. Even in good times, the owners can disagree with each other on new directions for the business, where to invest, or the extent to which profits should be taken out or reinvested in the business.
Over the many years that we have been advising business owners, we have observed just how common it is that there are disagreements over the management, ownership or control of a company between directors.
Some common concerns we hear about are –
- A director is concerned about having to continually put money into the company;
- Concerns about a partner issuing extra shares to him/herself;
- Reservations about salary or bonuses of directors;
- A director has done a deal with a related company in which he or she has an interest
- A director has set up another company which is competing with the first company.
Importantly, many of these disputes could be avoided if a clear and effective Shareholder’s Agreement was put in place from the outset. A shareholder’s agreement provides all the parties a level of protection and peace of mind when starting their company.
Shareholder’s agreements can cover things such as –
- Share, split and type of shares
- Shareholder’s voting rights
- Shareholder’s liability if the company is in debt
- How new shares are allocated
- The valuation of shares
- The process for transferring or selling shares
- The appointment and role of directors of the company
- Dispute Resolution
Resolving disputes without a shareholder’s agreement
People often find themselves involved in a company dispute without the benefit of a Shareholder’s Agreement. These disputes can result in a complete breakdown of the relationship between the parties which often seriously impacts the commercial operations of the business of the company.
If you are in this difficult situation, it is important to seek legal advice because there are still plenty of options available to you to resolve the dispute. Some of your options are to:
- Offer to buy out a party or to buy a controlling stake in the company;
- Reach an agreement after an informal or formal mediation;
- Appoint an auditor or obtain the accounts of the company;
- Commence proceedings in respect of a breach of a director’s duty;
- Appoint a liquidator or administrator
- Commence proceedings to have the company wound up under s 461 of the Corporations Act (“the Act”). This is seen as a drastic option so the court must usually be satisfied that the relationship between the parties has completely broken down.
- Make an application under s 232 of the Act for a range of remedies if the conduct of a company’s affairs has been oppressive. Here the Court must be satisfied that the conduct of the company’s affairs, an act or resolution (whether actual or proposed) is either contrary to the interests of the members as a whole or oppressive to, unfairly prejudicial or discriminatory against a member. If so the Court has a wide range of powers to grant relief such as winding up the company, modifying or repealing the company’s constitution, regulating future conduct of the company or for the purchase of shares of any shareholder by other shareholders.
Our Disputes Team is ready to lend assistance should you find yourself faced with any such issues. We have a history of working with companies in internal disputes to find resolutions that enable everyone to move on. Where necessary, we have also successfully run court proceedings to break the deadlock between rival directors. Call us on (02) 9411 4466 or email email@example.com, to discuss your options.