Shareholder disputes arising between shareholders can be dealt with in a variety of ways, depending on the nature of the dispute and the relationship between the parties involved. Commonly a resolution will involve one of the parties being bought out by the other shareholders (who will continue with the business) but a variety of options may be available, such as those set out below.
It may be necessary to engage in litigation to achieve the best outcome. Potential actions can include:
- Unfair prejudice petition, if the company’s affairs are conducted in a manner that is unfairly prejudicial to the interest of all or some of the members of the company. Typically this will result in the shareholder that has suffered the unfair prejudice being bought out by the other shareholders, although the court has wide discretion as to the awards it can make;
- Derivative action, if wrong has been committed but the directors are unable or unwilling to pursue it themselves (e.g. because they are the perpetrators, through breach of trust or director’s duties);
- Just and equitable winding up of the company;
- Actions against directors for breach of duties.
Our dispute resolution and corporate commercial departments work hand in hand as in a majority of cases litigation leads to a negotiated settlement of sorts, via mediation or during the course of litigation.
Shareholder disputes between owners can also take the forms of boardroom or partnership disputes.
If a negotiated solution can be reached then this can give flexibility to the parties to structure the transaction to suit them. Potential structures can include:
- Straightforward buyout by the continuing shareholders, with flexibility as to the timing of payment (e.g. deferred payments if the consideration is not readily available);
- Purchase of own shares by the company (out of the company’s own distributable profits before they are distributed to shareholders);
- Purchase by a new holding company (and a share for share exchange of the existing shareholders);
- Demerger, the business is split up and transferred into the names of different shareholders, so that each takes ownership and control of a different element of the business.
The added flexibility of a negotiated agreement can allow the parties to structure the transaction tax efficiently.