Disputes between shareholders of a private company are a common occurrence. The interests of shareholders can typically change from the business's inception to the point that they become unaligned, which can lead to irreconcilable differences between the shareholders. The differences may include (but are not limited to) the management of the affairs of the business.
Disputes between shareholders can have a detrimental impact on the business's success, resulting in a loss of management time and negative financial consequences.
Accordingly, finding an appropriate way to resolve disputes is crucial for the business's survival. Mediation is an efficient way to facilitate a resolution.
Mediation is a formal alternative dispute resolution process. It allows the parties to put forward their position and negotiate a resolution without any confrontation and with the assistance of a professional mediator. The mediator is a neutral, independent third party that helps the parties by working through each issue in dispute and ultimately keeping the parties focused on reaching a mutually satisfactory settlement.
Unlike arbitration, mediation is a non-binding procedure controlled by the parties. A party to mediation cannot be forced to accept an outcome it does not like, which means it is down to the parties to engage productively with the mediation process to settle. The mediator will usually assist in this regard by guiding the parties and suggesting concessions to bring them closer together in terms of what they consider acceptable.
Mediation has numerous benefits in the context of a shareholder dispute.
Firstly, the effect on the business reputation requires consideration. If court proceedings are issued shareholder disputes, those proceedings are potentially cast into the public eye since the statements of the case, and court hearings are a matter of public record. For the business that is the subject of the dispute, that exposure can hurt its client relationships and its client's perception of the stability of the business and its ability to satisfy any contractual obligations in circumstances where the business owners are engaged in litigation.
Whereas court proceedings are public, mediation is conducted in a private and confidential setting between the shareholders and their respective legal advisors. Therefore, using mediation to settle shareholder disputes can help to avoid negative publicity and helps to maintain client relationships.
Secondly, mediation encourages open and honest dialogue between opposing shareholders and can facilitate more productive communications between shareholders. That can sometimes mean that once a settlement is achieved, the parties can preserve their relationship. This is contrary to the result often achieved in court proceedings, where there is a 'winner' and a 'loser', which can lead to irreparable damage to the shareholders' relationship.
Finally, mediation is more flexible and cost-effective than litigating through the courts, and it can be organised much sooner than a hearing before a judge (which often takes several months). Mediation speed and flexibility can help alleviate the impact on the business by avoiding drawn-out and costly litigation.
You can contact our specialist Dispute Resolution Team for legal support on the topics discussed in this feature, along with any other litigation related assistance you may require. If in doubt, please take advice. You can contact the team on:
