Tag: falling out with shareholders

I feel sick – my business partner is stealing from me!

Andrew Marsden

You look at the bank online – someone in the business is syphoning off money from the business account.

You then work out that it’s one of your once-trusted business partners.

That feeling of betrayal is truly palpable.

For any director of a company, that will be a hard pill to swallow. It can be both hurtful and demoralising to think that your working relationship isn’t as strong as it once was. Of course, it’s not only the shareholder relationship that will suffer; your business could be impacted quite significantly too.

The not-so-bad news is a route to resolution can generally be found even in the most strained of circumstances. The success of this resolution will largely come down to what steps you take in the wake of the fallout and who you engage to assist with it.

Dealing with a fallout

When you’ve had someone cheat on you behind your back – whether that’s in work or in a personal relationship – there are generally two ways to move forward.

The first is to get emotional and upset and try to make the wrongdoer “pay” or to try to get “even”.

The other is to think logically and practically, taking a far more considered and constructive approach. This will almost always result in a more favourable result in the long term.

It can be very easy in the first instance to let emotion take over and lead your actions. It’s understandable, particularly when someone close to you has breached your trust. However, it’s important that this doesn’t cloud your judgement or negatively impact on your chances of resolving the dispute on the best terms available so that everyone can walk away, perhaps not amicably but at least satisfied with the outcome.

What outcome are you looking for?

This is the key question to ask yourself when you are in the midst of a conflict with a fellow shareholder or partner. Getting “even” may be the tempting option, but is it really the goal here? Take time to sit down and reflect on what outcome would be best for you in this situation.

Do you want to buy out your fellow shareholder or partner from the business and have them cease to be a director?

Do you wish for yourself to be able to walk away from the business in exchange for a fair value for your shares?

Having a clear goal will help define your route to resolution and the best steps to take to achieve it. A specialist barrister should be able to talk you through the process and advise on what, realistically, is achievable.

In my experience, often the most straightforward, efficient and cost-effective way to resolve disputes is to have one shareholder leave the company receiving a fair price for their shares. That being said, it has to be done in the right way; simply excluding a shareholder or director from the business can be potentially damaging.

A barrister experienced in these disputes should be able to clearly lay out the options for you and to explain what is involved at every stage of the process. Ultimately, they should help to ensure you are in the best possible place to make an informed decision on what is right for your situation.

The path to resolution

  • Having the right paperwork in place – If you already have a shareholders’ agreement in place, this will likely include provisions that can be used to help reach resolution. For example, a shareholders’ agreement might contain terms that permit you to force a shareholder to sell their shares. Again, care needs to be taken in enforcing such provisions and a barrister with specialist experience can help you iron this detail out. If you don’t have a suitable shareholders’ agreement, then it is certainly worth putting one in place before any conflict or dispute arises. Even if you have no shareholders’ agreement in place, you will have articles of association, the terms of which might also assist in finding the appropriate way forward.
  • Access to specialist legal advice – Getting appropriate, experienced and specialist legal advice from a barrister early on about your rights is perhaps the best way to ensure that disputes don’t escalate and that the path to resolution is as straightforward and pain-free as it can be. It is generally preferable to resolve disputes by using negotiation strategies or through engaging in mediation where possible. Your barrister can assist with this; trying always to ensure that sensible compromises are achieved while keeping relationships as intact and as amicable as possible. Of course, if things can’t be resolved via mediation, litigation through the courts may have to be considered as a final resort. Rest assured that if this is the route you end up taking, the right barrister will provide support throughout the process and keep costs transparent so that you enter into proceedings well-prepared and confident.

For the majority, this will be the first time you will have faced a shareholder dispute within your business. If this is the case, you will no doubt have many questions and concerns as to what to expect from the process.

Please do get in touch if you would like some more information or would like to discuss your own specific circumstances. An initial thirty-minute consultation is free, and I’d be very happy to advise you as to the best steps to take.

Is GPT-4 cleverer than a barrister?

Andrew Marsden

This news just in: GPT-4 wins chatbot lawyer contest!

Perhaps it’s time for barristers to hang up their wigs and let artificial intelligence (AI) take over?

But hold on; GPT-4 may have beaten all other chatbots – it scored 75% in the bar exams and out-performed all other artificial intelligence models at legal reasoning – but read the small print, and you’ll see it’s still no match for real barristers according to ‘New Scientist’.

Let’s face it, if you’re in the middle of a complex dispute with another shareholder, partner or director, would you rather speak to a chatbot or an experienced and specialist barrister?

Having spent over thirty years working with clients that are embroiled in often complex and heated shareholder disputes, I can say with absolute confidence that artificial intelligence is no match for the understanding, sensitivity, knowledge and experience needed to help navigate, mediate and resolve disputes of this nature successfully.

Here are just a few of the reasons why talking to a specialist barrister with decades of experience in this field will give you the best possible chance of resolving your dispute successfully and economically:

Shareholder disputes are complex

Shareholder disputes are often particularly complex. There are often multiple parties involved, years of history to consider and changing responsibilities, roles and relationships that need to be carefully understood. The terms and effects of relevant shareholders’ agreements and articles of association need to be understood, and where there is no shareholders’ agreement in place, things can be even more complicated. Without experienced specialist expertise, shareholders are far less likely to be able to resolve their dispute amicably and walk away with a result that they can feel satisfied with.

Shareholder disputes are often sensitive.

When business relationships turn sour, there are generally a lot of human emotions at play. It is not unusual for shareholders to seek legal advice fuelled by feelings of anger, hurt, betrayal and animosity. Dealing with a real human is invaluable at this stage, particularly one that carries decades of experience in this tricky field; barristers are able to provide reassurance, level-headedness and clarity to clients in a way that artificial intelligence simply can’t. The client/barrister relationship is key.

Effective resolution of shareholder disputes can take time. It’s a process. You are likely to find that you need your barrister’s support during that process, and that support will only be effective if it is built on solid foundations. You will need to establish a relationship with your barrister based on trust, respect and understanding. A chatbot simply can’t provide that support. Nothing beats expert advice. 

Taking specialist and experienced legal advice at as early a stage as possible provides the best route to resolution in as seamless and stress-free way as is possible. Chatbots are simply incomparable to specialist barristers with years of experience in dealing with complex situations such as yours. An experienced, specialist barrister should be able to identify the best steps to take towards resolution. From pre-litigation to mediation and negotiation and right through to court proceedings, a specialist barrister will be able to advise, guide, represent and support you.

If you find yourself in the midst of a shareholder dispute and would like to talk to a specialist barrister with over thirty years of experience, please do get in touch by calling me on 07718 883094 or emailing andrew.marsden@commercialchambers.org. A thirty-minute initial conversation won’t cost you anything -I’d be very happy to offer you some advice and guidance.

Falling out with fellow shareholders, directors or partners – what next?

Andrew Marsden

It’s a scenario you probably never anticipated. When business relationships start out it can be difficult to envisage things ever turning sour. Why would you expect and plan for the worst to happen? The start of a new business venture is an exciting and motivating time. More often than not business relationships are forged out of a passion and a shared vision of what can be achieved.

Unfortunately, things don’t always stay that way.

Once the ‘honeymoon period’ is over it’s quite common for cracks to start to appear. For some these can be filled or at least papered over with little long term impact but for others those cracks start to deepen. When that occurs, it can have serious consequence for you and your business.

Shareholders, directors and partners fall out for a multitude of reasons. Typically, these might involve the diversion of business opportunities or the misappropriation of funds or assets. Perhaps someone has been caught with their “fingers in the till”. Sometimes one person may feel they are being excluded or left out of business decisions. Such scenarios feel unfair and prejudicial. Though the cause of the relationship breakdown may differ from case to case, the route to resolution is what’s important here; and there are several key stages to getting there.

Do you have a shareholders’ agreement already in place?

I always recommend those involved in business together ensure that they have a properly prepared shareholders’ or partnership agreement in place from the outset.  It will help to define shareholder or partner responsibilities, assist in the smooth running of the business and provide a mechanism for effective resolution of any disputes that might arise. Perhaps even more importantly, the presence of a decent shareholders’ or partnership agreement can actually help reduce the chances of future conflict.

It may now seem like a far and distant memory but, when you first entered into your business relationship, did you actually enter into a shareholders’ or partnership agreement. Perhaps you were keen to have an agreement in place from the outset. You may have had one drawn up on a recommendation. You might simply have had one prepared because it felt like the right thing to do.

If so, it is really important to familiarise yourself with its contents. It’s crucial you understand the details of any agreement that you have entered into and how it might affect or provide a route to resolution of any dispute you might find yourself in.

Take legal advice early on

Engaging a specialist and experienced barrister might well be the cheapest and best way of ensuring that the route to resolution is as seamless and stress-free as possible.

A specialist and experienced barrister will be able to identify any provisions in a shareholders’ or partnership agreement (including any concerning the exit of a participant) that might assist you. Your barrister will be able to give you a clear understanding of what impact they may have and advise on the next steps to take to achieve resolution.

What might those next steps look like?

Commonly a shareholders’ or partnership agreement will include provisions that can be used to resolve such disputes or will, at least, set out procedures for doing so.

Typically these might require one shareholder to sell their shares, cease to be a director and leave the company. But the process of removing a shareholder/director from the business can be complex and great care is required to avoid it backfiring. Again, a specialist barrister will be able to advise as to the options available and the procedures to be followed.

While complications can arise, having one shareholder walk away from the business receiving a fair value for his interest can often be the most straightforward solution. Indeed, in my experience, shareholder disputes can often be resolved in this way quickly, at limited cost and in a way that minimises disruption and damage to the business.

What if there is no agreement in place?

A surprising number of businesses don’t have any shareholders’ or partnership agreement in place. If you are in that position, all is certainly not lost.

Again seek early specialist advice from someone experienced in the resolution of these disputes who can guide and navigate you through the process towards resolution.

Initially you will need to consider negotiation or mediation as strategies to try to achieve workable compromises while keeping relationships as amicable as possible. Your barrister should advise you on the best approach to take and what you might realistically hope to achieve in your particular circumstances. It is nearly always preferable, from time, money and minimal business disruption perspectives, to achieve resolution in this way rather than through the courts.

In other case litigation may be inevitable. It may be the only way to achieve resolution. It may provide the catalyst that gets everyone talking sensibly. Generally, this begins with pre-action correspondence which may itself lead to resolution early on. If not, it may be necessary actually to issue proceedings and follow the litigation process which involves an exchange of statements of case, disclosure of documentary evidence, the provision of witness statements and expert evidence and, eventually, if necessary, a trial and a determination by a judge. However, it’s important to be aware that settlement can be achieved at any time during this process and very few cases actually go so far as reaching a trial and a determination by a judge.

Once again, you should turn to a specialist and experienced barrister who will work with you throughout the entire process from start to finish and ensure that, shareholder or partnership agreement in place or not, your dispute is resolved as amicably, on the best terms, as cost-effectively and as efficiently as possible.

To find out more, please get in touch by calling me on 07718 883094 or emailing andrew.marsden@commercialchambers.org. A thirty minute initial conversation won’t cost you anything and I’d be very happy to talk you through the options available and to advise on the best route to take.