Business disputes can arise for a myriad of different reasons.  For example, some of the matters over which partners, directors and/or shareholders commonly fall into dispute often relate to:

(a)           the daily management and general operations of a business and/or company;

(b)           the treatment of minority shareholdings;

(c)           employment and recruitment issues;

(d)           the distribution of profits;

(e)           diverging business interests;

(f)            the failure to provide financial, accounting and statutory information;

(g)           exclusion from meetings and management;

(h)           breaches of shareholder or partnership agreements;

(i)            breaches of director duties;

(j)            the appointment, remuneration and/or removal of partners or company officers; and

(k)           financial and taxation issues.

The most effective way of reducing the risk of a partnership and/or company dispute arising is to have a partnership or shareholder agreement professionally drafted.

These documents are critical when it comes to reducing the risk of a dispute as they ensure that the parties are aware of their respective rights, obligations and liabilities from the very outset of their commercial relationship.

The terms of a shareholder or partnership agreement typically relate to the funding, structure and management of the business or company and also often include:

(a)           terms referred to as “deadlock breakers”. These terms often allow the parties to move past a stalemate by, for example:

(i)            allowing a partner or shareholder to purchase the shares or interest of the other party at a nominated price;

(ii)           allowing a shareholder to become the chairman with a casting vote; and/or

(iii)          allowing the company to be voluntarily wound up if the deadlock continues for a specified period of time;

(b)           terms restricting the transfer of a shareholder’s shares or a partners interest;

(c)           terms which provide for mandatory sale events.  For example, terms which govern what is to happen in the event that a director dies, resigns or files for bankruptcy;

(d)           terms which provide for valuation methods;

(e)           terms which governing conflicts of interest;

(f)            terms which set out non-compete clauses; and

(g)           terms which provide for alternative dispute resolution in the event that a dispute arises.

Regardless of whether or not the parties have a shareholder or partnership agreement in place, it is important for all parties involved in a dispute to seek to resolve it on a commercial basis prior to engaging in litigation which may potentially damage the profitability and reputation of the business or company.

In this regard, there are a number of options available to partners, shareholders and directors in seeking to resolve a dispute prior to commencing litigation.  Such options include:

(a)           Negotiation – Negotiation often allows the parties to understand their respective legal and commercial positions which in turn can facilitate resolution of a dispute at an early stage; and

(b)           Mediation – Mediation is the most common form of alternative dispute resolution and is commonly used to resolve director, shareholder and partnership disputes as it allows the parties to obtain the assistance of an independent mediation who can help them to narrow the issues in dispute and develop options for resolution.

If, after engaging in negotiation or an alternative form of dispute resolution, it becomes clear that there is no way forward for the parties, it may then become necessary to take court action to preserve the value of the business or Company and/or enforce a your rights.

In this regard, and in the context of a director and/or shareholder dispute, the Corporations Act 2001 (Cth) (the Act) provides a number of statutory rights and causes of action for shareholders, for example:

(a)           oppressive conduct – section 232 of the Act provides that shareholders can apply to a court for a range of remedies if the conduct of a company’s affairs is contrary to the interests of the shareholders as a whole or oppressive to, unfairly prejudicial to or unfairly discriminatory against a particular shareholder;

(b)           derivative action – under section 236 of the Act shareholders may seek an order from a court to bring proceedings in the company’s name where the company itself is unwilling or unable to do so itself;

(c)           statutory injunction – under section 1324 of the Act, shareholders may apply for injunctions to restrain the company from engaging in conduct that contravenes the Act; and

(d)           right to inspect books – under section 247A of the Act, shareholders may apply to the court for an order to inspect the company’s books.

The above constitute just a handful of examples of shareholders’ enforceable rights.

One of the most common causes of action when a dispute arises between shareholders and/or directors of a company is an action in oppressive conduct.

Oppressive conduct proceedings are commonly commenced in the Supreme Court of Victoria in circumstances where there is a dispute between shareholders and/or directors.  Examples of oppressive conduct include but are not limited to:

(a)           refusing to provide access to information about the company’s affairs;

(b)           unfair allocation or restrictions on the payment of dividends to particular shareholders;

(c)           using company funds for an improper purpose, for example, personal use;

(d)           paying excessive remuneration to the person having control of the company; and/or

(e)           denying a director the opportunity to carry out their functions.

There are a number of potential outcomes of an oppressive conduct proceeding.  For example, if the matter proceeds to trial, the Court may make any order in relation to the company which it considers appropriate.  Such orders may include, for example:

(a)           that the company be wound up;

(b)           that the company’s existing constitution be modified or repealed;

(c)           orders regulating the conduct of the company’s affairs in the future;

(d)           orders for the purchase of a party’s shares;

(e)           orders appointing a receiver or manager over all or any of the company’s property;

(f)            orders restraining a person from engaging in specific conduct; and/or

(g)           orders requiring a person to do a specified act.

Partnership, company and shareholder disputes are often complex, time sensitive and difficult to navigate if you are unfamiliar with the relevant processes and legislation.

Coulter Legal has extensive experience in assisting clients in such disputes.

We can assist clients by advising on their rights and obligations as well as the most cost-effective and timely avenue for seeking to resolve a dispute.