A PATH TO EQUANIMITY: SHAREHOLDER AGREEMENTS AMID DISPUTES
Disputes are a fact of business life and arise for a multitude of reasons. In a shareholder context, discord can be particularly damaging, as a business dispute among ‘friends’ is wholly different from one between ‘enemies’.
Shareholders may disagree over direction and strategy, dividend payouts, salaries paid to shareholders who also work for the business, time and money contributions, dealings between the business and another entities owned by shareholders, and the price to be paid when a shareholder is bought out. Also, minority shareholders may feel disadvantaged by the actions of majority shareholders.
According to a London International Disputes Week podcast hosted by Quadrant Chambers – ‘The rise in shareholder disputes: practical strategies for resolution’ – investors have been paying closer attention to underperforming investments, leading to an increase in the discovery of fraud and wrongdoing. Furthermore, parties are making moves to take control of struggling businesses and ousting underperforming business partners.
In its 2021 ‘Boardroom, Shareholder and Partnership Disputes’ report, Charles Russell Speechlys characterises the breakdown of relations between shareholders as being acrimonious as going through a bitter divorce, particularly in the case of informal ‘quasi-partnerships’ or family run companies. Breakdowns, the report suggests, can sometimes lead to a harmful impact on a company’s reputation, leading to the potential for unwanted publicity.
“Greater awareness of investor rights and director responsibility means shareholders are looking to hold those responsible for the mismanagement of the business directly accountable, in line with increased standards on corporate governance,” says Caroline Sheldon at Cleveland & Co. “The balance of control and power between directors and shareholders and shareholder decision-making processes needs to be clearly defined.”
Oct-Dec 2021 issue
Fraser Tennant