Partnership & Shareholder Disputes
We appreciate that running and developing a successful business brings its own pressures which can result in disputes between the owners. Family members are often involved when the business in question is privately owned. Such a dispute can be extremely disruptive and, if not handled correctly, can not only destroy the relationship between the owners but also cause severe damage to the business itself. Therefore whilst we will advise you on the legal rights and options available to you, we also consider alternative strategies. Confidentiality is key when dealing with internal disputes within a business so that competitors and customers do not become aware of it. It is therefore imperative that your legal team aim to minimise the disruption and loss caused as far as possible.
When approaching any dispute between partners, the starting point is to examine the terms of any Partnership Agreement. A well drafted Partnership Agreement will often set out the rights and obligations of the individual partners; what will happen in the event of a dispute and the method of valuing a partner’s interest in the assets of the business.
However, many partnerships, particularly family partnerships that may have been in place over many years often do not have a formal written agreement. In that scenario, the dispute is governed by the Partnership Act 1890 which often does not cater for the requirements and wishes of the parties. It can impose draconian outcomes upon the individuals and business, including the possibility of the partnership being wound up and assets sold, which is often not in the best interests of any of the parties or the business.
We have a wealth of expertise in advising clients in this area. Recent cases we have dealt with include:
- The dissolution of a farming partnership and the disposal of assets worth over £1.5 million
- The removal of a partner of a medical practice and reaching a compromise to allow the medical practice to retain its NHS contracts and to continue trading
- Advising a client on establishing that there was a partnership after the other party disputed its existence
- The dissolution of a property partnership and obtaining an account of profits
Sometimes a minority shareholder who is not a director of the company and thus does not have any influence in the day to day running of the company may feel that their interests are not being adequately protected. Majority shareholders and directors may not be declaring a dividend despite the fact that there are sufficient profits to do so or may be making decisions which do not appear to be in the best interests of the company. The disgruntled shareholder may want to realise their interest in the company but cannot agree with the directors or other shareholders as to how this to happen. There may be claims for unfair prejudice to minority shareholders or claims against the directors for breach of their duties.
Similar to partnership disputes, the starting position in any shareholder dispute is to examine the terms of any Shareholders’ Agreement. That should set out the rights and obligations of the parties, determine what should happen in the event of a dispute and provide for a method of valuing the shareholding. Other business professionals are likely to be instructed to assist, such as expert accountants and valuers.
If there is no Shareholder Agreement, then court action may be necessary to have a “just and equitable” winding up of the Company and for the assets to be sold, the liabilities repaid and any surplus distributed amongst the shareholders. This is an order which many parties do not want as it means the end of the Company. The Court can order that one party buys the other parties’ shareholding and the price to be paid. The Company is a separate legal entity for the purposes of any claim.
We have expertise in advising minority shareholders, directors and the Company in such claims. Recent cases include:
- Issuing proceedings for unfair prejudice to a minority shareholding in a family business and achieving a beneficial settlement for our client before the final trial
- Dealing with a dispute over the proposed expulsion of two directors who were also shareholders which was ultimately settled in our clients’ favour without the need for proceedings
- Defending a claim for unfair prejudice in a family business and achieving a settlement which allowed the Company to continue.
Many partnership and shareholder disputes are settled without the need for a contested hearing, either as a result of negotiation or formal mediation. We explain this in more depth in this article on the blog ... Mediate or Litigate? Given the impact that an internal dispute can have on a business, the relative speed and cost effectiveness of mediation when compared to litigation, makes it very suitable for disputes of this nature.