Company & Business Disputes
Dispute Resolution & Litigation
Giving you expert advice to resolve business and company disputes.
Disputes between directors and shareholders (or business partners) invariably arise during the course of business, often due to arguments over contributions or effort, differing opinions as to management and direction, or because of a lack of clarity around roles.
We have found that by getting parties to communicate openly and honestly about their roles and contributions and by exploring their interests, disputes can be resolved at an early stage. We can assist our clients by generating viable options without having to resort to litigation. Resolving a dispute in this manner will ultimately save you time and money and will give both sides more control over the outcome.
Disputes in business most commonly arise due to:
- A lack of clarity around roles: It is important that each director’s role is clearly defined to avoid blame games.
- Arguments over contributions or effort: Underperformance can be a sensitive point of contention between business partners, where one side may feel they have contributed more than the other – shareholders inevitably overvalue their contribution (sweat equity).
- Different opinions as to management and the direction of business: Differing opinions can have a significant impact on business partners being able to resolve matters and successfully move forward.
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Advantages of having a Shareholders Agreement
Although it is impossible to predict and guard against every type of dispute that may arise between business partners or shareholders, a well drafted agreement will usually have a dispute resolution mechanism which includes a ‘buy out’ or ‘sale’ option with an agreed path or method for valuing the business, as well as reciting the agreed initial financial inputs and what is to happen with the intellectual property of the business.
A Shareholders Agreement may also govern succession issues and provide for appropriate insurance so that if a business partner dies or becomes permanently disabled, there are funds to pay out the departing partner’s share with the remaining partner/s able to continue the business.
Although certain businesses have different issues and may need specific clauses dealing with matters exclusive to that area, having an agreement can save a lot of time, emotional energy, money and legal costs. Our dedicated dispute resolution lawyers can assist and help your business resolve internal disputes promptly.
There are many reasons a shareholder might require company information, often it is because there are suspicions that the company is financially unstable or conduct is being exhibited which is oppressive to shareholders. The Corporations Act 2001 provides various mechanisms for minority shareholders to obtain relevant information from a company.
A shareholder is entitled to a copy of the company’s constitution within 7 days of submitting a request in writing. Under certain circumstances, a shareholder in a proprietary company is entitled to a financial report and/or a report from the directors. As a last resort, an aggrieved shareholder can apply to the court to obtain the company’s books in certain circumstances.
The best way to recover money from a company is by issuing a Creditor’s Statutory Demand which is a formal demand by a creditor to a company under Section 459E of the Corporations Act 2001 (Cth). They are suitable for debts over $2,000, which is not in dispute and are due and payable.
If a company owes you money, and the debt is not disputed, a creditor’s statutory demand can be a useful tool when used correctly. It forces a company to pay the debt within a 21 day period, otherwise, the company will be deemed to be insolvent and can be wound up (put into liquidation).
This streamlined form of debt recovery is a very effective way to recover a debt from a company.
Generally, no. Directors are protected under ‘the corporate veil’. This is because a company is its own distinct corporate legal entity which is capable of suing and being sued. Therefore, joining directors to most lawsuits is not permitted and, generally speaking, a director will be protected from court proceedings.
Many clients seek our advice about director’s duties and corporate governance. We regularly see issues arising from director disagreements to more serious issues such as directors breaching their fiduciary and statutory director’s duties imposed on them by the Corporations Act 2001 or under the common law or the company’s constitution. An investigation and appropriate legal advice may lead to the sacking of a director for serious misconduct.
In addition to the requirement to ensure compliance with general and specific laws applying to a company’s operations, a director’s duty is to the shareholders. If shareholders are being unfairly treated or oppressed, there are avenues available for shareholders to seek redress under the Corporations Act 2001. However, if a company is insolvent, or if there is a risk of insolvency, a director’s duties extend to include creditors (including employees with outstanding entitlements).
When seeking to resolve a dispute between business partners, addressing the issue at an early stage is essential. This can reduce interference to business operations, or ultimately allow all parties to move on with their life. Early intervention can also reduce the cost, delay and stress associated with litigation. Getting appropriate advice from an experienced dispute resolution lawyer can assist parties to engage in open and honest discussion which is critical to resolving all matters.
Attwood Marshall Lawyers specialise in advising on breaches of shareholders’ agreements, explaining party’s obligations, and assisting with deadlocks, buyouts and separations.