Obligation of Directors in Shareholder Disputes

Obligation of Directors in Shareholder Disputes

When you run a business, things don’t always go according to plan. Instead of the plain sailing you expected, suddenly there are shareholder disputes to settle. If you are the director you have certain obligations and the first one is the consult with a commercial lawyer to ensure you take the right road to recover. If you don’t, it is possible to lose the business altogether.

The first thing to be done is to negotiate with the other parties to try and resolve the conflict. If this doesn’t work it can be taken to mediation where a neutral party helps to facilitate the discussion so that the parties can hopefully, resolve the conflict. The mediator has no say in how the parties resolve it or in seeing that the resolution is a fair one.

Where failure to resolve once again occurs the matter then must go to arbitration. The only trouble with this is that the decision for how the resolution should come about is taken out of the director’s hands and even the shareholders will have no say. Very often the company must be wound up and everyone loses out. While the resolution is enforced legally and the judge considers his decision to be the fairest for all concerned, very often the parties are still left unsatisfied with how things were worked out.

The obligation of the directors is to not let it get to this. It doesn’t help matters at all to ignore them and hope they’ll go away. Issues spring up for a reason and that must be dealt with before it gets any worse. If the dispute is between two directors who are also 50% shareholders, they should be able to come to some agreement rather than risk seeing the result of all their work go down the drain.

The trouble is that matters are often made worse by feelings of hostility at the perceived wrong one of them has suffered, making it difficult to reach an agreement on how to solve the actual problem. This is why having a mediator can be so useful. They know how to defuse tense situations and get the parties both working towards a resolution without getting sidetracked by issues that are actually emotive rather than cold, hard facts.

However, in the case of one of the directors having done something illegal, the best recourse is a legal one and can mainly be helped by having a lawyer advise you. At least that way you’ll be able to protect yourself from being party to any illegal activity and having to suffer the consequences when it was all the doing of the other party.  That may seem like small comfort if the company has to be wound up, but at least you won’t go to jail.