Clashing Personalities: Resolving Director and Shareholder Disputes
Director and Shareholder disputes can come about in various ways, whether due to differing visions, a mismatch of personalities, or conflicts of interest. No matter where they came from, these disputes can deadlock a company and stall it in its tracks, making it imperative to resolve the issues as soon as possible.
What duties does a company director have?
All company directors have to act according to ‘fiduciary duties’. These are legal obligations to act in the best interests of the company and its shareholders, mostly set out in the Companies Act 2006. Alleged breaches of these duties are often a source of director and shareholder disputes.
What are the options for dealing with a director in breach of duty?
The web of law surrounding director and shareholder disputes is highly complex as it combines common law, statute (such as the Companies Act), and the company’s own governing documents (the Articles of Association). This means there are various ways an alleged breach of duty can come about, and various ways in which it can be resolved.
The director may be required to pay compensation for any losses, but these typically go to the company itself rather than the shareholders. A shareholder may instead wish to take ‘derivative action’ – which is a claim they bring on behalf of the company. This aims to allow the shareholder to pursue the director for wrongdoings by letting the shareholder act on behalf of the company itself.
Minority shareholders can choose to use an ‘Unfair Prejudice Petition’ against the majority, if the company’s affairs are or have been conducted in a way that is unfairly prejudicial to their interests.
Courts have enormous discretion as to which remedies are available, making this a particularly litigious area. However, one more common remedy is a ‘buy-out’ order, where the majority shareholders are ordered by the Court to buy out the shareholding of the minority. It is important to seek legal advice to make sure the commercial interests of the company are not compromised in pursuing litigation.
How can a director be removed from their position?
The process of removing a director is governed both by relevant statute and the company’s own Articles of Association. The Articles may provide that other directors on the board can remove a fellow director through a majority vote or resolution. As well as this, the Companies Act gives shareholders the power to remove a director in certain circumstances. However, given the strict procedures, processes, and requirements within the Act this can be a very complicated process.
It should be noted that that removing a director can give rise to employment law issues or potential claims by a shareholder-director such as unfair prejudice. The merits of removing a director must be weighed against the potential implications – both legal and commercial.
How can Ellis Jones help with director-shareholder disputes?
Given the complexity of this area of commercial law, it is well advised to seek legal advice if you are faced with a director and shareholder dispute. Our specialist dispute resolution team has substantial experience dealing with claims in this area, and can assist you in managing both your legal and commercial interests.
We are also experienced in providing Alternative Dispute Resolution (ADR) such as mediation and arbitration through our fully accredited team of experts, allowing you to pursue a less expensive and aggressive route than traditional forms of litigation.
If you need legal advice or support with a Dispute, please get in touch with our team of experienced solicitors on 01202 525333 or by emailing resolution@ellisjones.co.uk.
How can we help?
When you submit this form an email will be sent to the relevant department who will contact you within 48 hours. If you require urgent advice please call 01202 525333.
