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Shareholder

Types of Shareholder disputes

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Shareholder disputes can arise for a number of reasons. It might be that one shareholder wishes to force the other to sell them their shares, or one shareholder may feel they are doing more work than the others, or shareholders disagree about business decisions, or a director may have breached their duty.

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Resolving Shareholder disputes

 

When a dispute arises, careful consideration of the shareholder agreement and common law will be required to help resolve the dispute. The best method for resolving a shareholder dispute is through negotiation. If negotiation does not work, then a dispute may be taken to the courts.

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Negotiation is more cost and time efficient compared to going to court. During negotiations parties may decide that the best option is to sell the company, or split the assets of the business. Another option is to negotiate the sale of their shares, where the shareholder(s) will sell their shares to either the other shareholder(s) or a third party. 

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If negotiations do not work, parties can resort to taking the dispute to court. Disputes that are likely to go to court are director breach, shareholder oppression, fraudulent management or self-dealings. The court can provide remedies in the form of injunction, specific personal remedies, or in extreme cases winding up of the company. In certain circumstances where the formation of the company was based on personal relationships with mutual confidence, and these things have broken down, or a shareholder has been denied information or excluded from major decisions, these will be considered “just and equitable” grounds to wind up a company under section 461(1)(k) of the Corporations Act 2001.

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Shareholder Oppression Claim

 

A shareholders oppression claim is where one shareholder claims that the company is being conducted in a way that oppresses or discriminates against them. Examples of oppressive conduct include:

  • Restrictions or unfair allocations of payments of dividends to particular shareholders;

  • Conduct that refuses shareholders access to information about the companies affairs; or

  • Using company funds for improper purposes.

 

If the court finds that there has been oppressive conduct, then s 233 of the Corporations Act 2001 grants the courts the power to make orders to:

  • wind up the company;

  • regulate the conduct of the companies’ affairs in the future;

  • make one shareholder buy another shareholders shares;

  • stop someone from engaging in specific conduct; or 

  • modify and review the company constitution.

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Business meeting

Shareholders Agreement

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A shareholder agreement is a binding document that sets out and governs the relationship between the shareholders and directors of a company. It is important for a company to have a shareholders agreement as it sets out how the company will be managed, and the rights of the shareholder and directors from the very beginning, which will aid in resolving any disputes in the future. A shareholders agreement can minimize conflict, maximize cost efficiency, and allow for the company to grow.

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A shareholders agreement will outline the structure and management of the company. It will also include what decisions will be made by shareholders versus directors, and what decisions will be made together. It will specify the rights of the directors and shareholders including voting rights, rights to appoint a director and rights to dividends. The agreement will also set out how directors can be appointed and removed and by who. Other aspects that a shareholders agreement will cover include:

  • The process of issuing, buying, splitting or converting shares;

  • The rules around selling shares or the company;

  • The price of the shares in the event of a sale to another person or a buy-out;

  • Reasons that would allow for a shareholder to be forced to sell their shares and leave the company;

  • How disputes will be resolved; and 

  • How deadlock votes will be decided.

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If you require assistance with drafting or advising on a shareholder agreement, please Contact Us to avoid heavy litigation costs down the track when parties are in dispute. 

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