In life – and in business – we can’t get along all the time.
Unfortunately, boardroom and shareholder disputes are not uncommon and can arise for many different reasons.
If boardroom disputes do arise, it’s important to resolve the problem as quickly and smoothly as possible before it starts to impact the running of the business, or even ends up in a deadlock situation whereby the issue can’t be resolved.
Failure to do so could damage the company’s reputation, lead to insolvency or even result in the business no longer being able to trade.
So, if you’ve got a boardroom dispute and aren’t sure what to do next, read on for our expert help and advice…
What is a boardroom dispute?
Boardroom disputes are not uncommon.
In fact, a global study conducted of 191 directors and board members revealed that 29.6% of respondents had experienced a boardroom dispute which affected the survival of the organisation, whilst 42.9% reported a conflict that had reduced the level of trust between board members.
Different types of boardroom dispute include the following:
- Disagreements over the direction of the company.
- Poor personal relationships and a breakdown of relations.
- Conflicts of interest (because a director is involved in another business).
- A perceived poor performance of a director/shareholder.
- Concern over whether the board is meeting its legal obligations and responsibilities.
- The selling of shares back to the company of other shareholders.
In addition, disputes can also arise because directors are perceived to be paying themselves too much and therefore stopping money getting to the shareholders or keeping money in the company when shareholders think it should be paid out as dividend.
Shareholder agreements and anticipating disputes.
Feuds are much better resolved than tolerated – and the good news is that often, many of the disputes that typically arise between shareholders and/or board members can be prepared for in advance.
By signing a shareholder agreement, you can ensure that all parties have properly agreed how the business is to be run and have standards outlining how to approach and resolve conflicts.
It might seem strange to add policies about how to handle conflicts before a dispute has happened – but by having such policies and procedures in place to handle any conflicts, you can nip any disputes in the bud before they become bigger problems and save yourself a great deal of time, money and stress, too!
The agreements usually state that in the event of a dispute, mediation should be used first to prevent the situation from escalating. If you need a mediator, we can refer you to our expert network of solicitors and accountants.
Finding a solution
To resolve disputes in the boardroom, then, the first thing you may wish to consider is bringing in an independent third party to mediate. They will be able to assess both sides of the argument and suggest pathways to resolution, without being biased by their own interest in the company.
If an informal resolution is out of reach, you should review the company’s key documentation for details of how to resolve the dispute.
All companies should clearly state in their articles of association how these issues should be dealt with; all directors should also have a signed director’s service agreement in place to ensure that when these issues do occur, there is a clear road map with regards to how to proceed.
The question of directors’ duties
A director’s duties can be confusing at times, and some directors fail to properly grasp the distinction between the company as a separate legal entity and their own personal finances.
Essentially, however, a director should always act in the best interest of the company unless the company becomes insolvent, in which case they must place the interests of the creditors above those of the directors and shareholders.
Therefore, whatever the ongoing issues between shareholders and/or the board of directors, should the company become insolvent, these differences need to be put aside whilst the company’s issues are dealt with.
Failure to do so could see you being investigated for wrongful trading or even being disqualified from acting as a director for up to 15 years.
How McAlister & Co can help
At McAlister & Co, we will refer you to a team of experts who can provide advice and guidance on how to proceed through negotiations whilst finding a solution that works for you and other parties involved in a dispute to ensure any difficult situations are resolved as soon as possible.
Whilst resorting to court proceedings to resolve boardroom disputes should be the last resort, if the deadlock cannot be resolved our in-house team of insolvency experts can assist with the winding up of the company.
There are three types of liquidation:
1. Members’ voluntary liquidation
This is where directors declare the company is solvent and put it into liquidation and all the company debts are paid in full.
2. Creditors’ voluntary liquidation
Here, directors determine the company is not viable and put the insolvent company into liquidation.
3. Compulsory liquidation
In this case, the insolvent company is wound up by the court on presentation of a winding-up petition.
Winding up a company
Under S.122 of the Insolvency Act 1986, a company may be wound up by the court if “the court is of the opinion that it is just and equitable that the company should be wound up”.
Whilst there is no easy definition of what ‘just and equitable’ is defined as, examples where a winding up order could be made include the following:
- A minority shareholder was wrongly excluded from management.
- The majority shareholders have consistently ignored the rights of the minority.
- The directors have awarded themselves excessive remuneration whilst refusing to pay dividends to shareholders.
- There is deadlock in the company and no decisions can be made.
However, a court is unlikely to wind up an otherwise healthy company and will therefore look at other alternative options before granting an order for winding up.
Should there be assets in the liquidation, existing directors, shareholders and third parties may bid for the assets of the company, such as office equipment, stock and the company name.
However, the duties owed by a director to the company and its creditors survive the company’s entry into liquidation and so directors must ensure that if they buy back assets from the insolvent company, they do so at market value.
Next steps
For more information on disputes in the boardroom, contact McAlister & Co today. For mediation and advice on how to resolve disputes, we will use our network of professionals to recommend solicitors and accountants that can help.
Alternatively, should the company enter liquidation, our insolvency team will be able to assist every step of the way.
