How do you resolve a Shareholders Dispute?

We are frequently asked how do you resolve a shareholder dispute. The starting point is to gather the following information:

• Name of the company and a copy of the company’s articles of association
• Chronology of events which details the dispute and includes any supporting evidence
• Copy of relevant correspondence between the parties in dispute
• Copy of any shareholders agreement and/ or relevant employment contracts of the parties in dispute
• Any other relevant information and documentation

Once we receive this information, and upon review, we:

• Analyse the contractual documents including any shareholders agreement and employment contracts, to determine whether the conduct of any of the shareholders has breached any of their terms
• Analyse the company’s articles of association to determine whether the conduct has breached any articles
• Consider statutory law rights, such as rights in unfair prejudice and derivative actions to determine whether there are grounds for bringing a claim
• Consider any claims in tort or other causes of action that might be specific to the dispute in question

Once this analysis has been performed, we then determine the best strategy to try and resolve the shareholder dispute. A popular way to do this is to write an “open letter” to the other parties to the dispute, asserting your rights and where appropriate, putting them on notice of the grounds of any claim that you may have against them, such as breach of a shareholder’s agreement.

In conjunction with the “open letter”, you should consider sending a “closed letter” on a Without Prejudice basis, which could include a settlement offer, or alternatively recommend alternative dispute resolution (ADR) to resolve the dispute.

There are various forms of ADR, but in our experience, mediation can be the most effective. However in order for it to be effective, the parties should have disclosed their respective positions, so that each party can evaluate the others position and determine if and upon what terms they wish to settle. Disclosing your position includes detailing your claim and/ or defence in sufficient detail that the other party can understand and evaluate your arguments; you should also disclose all applicable evidence to support your case.