Picture the scene, business is on the up, dividends are being paid, what can possibly go wrong?
Hopefully nothing, but it is best to be realistic. There is always the possibility that a dispute may flare up between shareholders even if the business is well. This is not that surprising when you consider that shareholders’ interests will diverge over time. Disputes arise for many reasons such as a difference of opinion over the direction of the company or how the business should be managed.
Generally, shareholder disputes fall into three broad categories:
- when the majority shareholder is blocked by minority shareholders from implementing a particular course of action;
- where a minority shareholder is pressured by the majority to accept things they do not agree with; and
- where the shareholders have reached a deadlock.
Each dispute will be unique in its own way, but there are some key points that remain the same for all companies, that may not assist in providing a mechanism for resolving disputes, namely:
- What rights are set out in the company’s articles of association?
- Is there a shareholder’s agreement?
Although these are not sure-fire preventative measures, setting up a company with bespoke articles of association and a shareholder’s agreement provides certainty in respect of the management of the company including if there is a shareholder disagreement. In essence, you can liken a shareholder’s agreement to a sort of prenuptial agreement between the shareholders.
However, let us assume that a shareholder’s agreement is not in place (which does tend to be the norm for a Jersey smaller business company). What do shareholders do when a serious conflict arises and negotiations have not been successful?
Mediation
Mediation, if successful, is less costly and less adversarial than Court proceedings. Mediation often involves a neutral third party to assist in discussions and attempt to navigate the parties to come to an agreement that is acceptable to everyone involved. Both parties must agree to settle at mediation though there are other types of alternative dispute resolution (“ADR”) that can, like a Court, impose a settlement on the parties without their consent to that settlement.
Litigation
If lawyer led negotiations and mediation have either failed or been ruled out by one of the parties, the Royal Court may be the only option available to the conflicting shareholders to resolve their dispute. There are a number of reliefs and remedies available to the Court to resolve such disputes.
Court litigation should be avoided if possible as it can lead to considerable expense and disruption for the business in question. This is where our expertise is invaluable as Parslows LLP have an excellent track record of settling disputes to the satisfaction of our clients through the mediation/ADR process. However, if a case ends up in the Royal Court we protect our clients’ position vigorously and successfully.
If you have any questions arising from this article, Advocates Carl Parslow and Alexander English would be delighted to discuss them with you.