How to navigate the complex world of director and shareholder disputes
Written by Enoch Evans Solicitors
Starting a business is often driven by passion and the promise of a shared vision.
Whether it’s with friends, family, or investors, the initial excitement of a new venture is often hoped of becoming a “dream business”.
However, what happens when that dream business begins to unravel? Disputes between directors and shareholders can quickly turn an exciting opportunity into a challenging predicament and potentially a complete nightmare.
Understanding your role and responsibilities
Directors
Directors carry significant responsibilities.
Their legal obligations, known as fiduciary duties, are to act in the best interests of the company and its shareholders. These duties, outlined in the Companies Act 2006, sections 171 – 177 include:
- Acting within the powers conferred by the company
- Promoting the success of the company
- Exercising reasonable care, skill, and diligence
- Avoiding conflicts of interest
For example, if a director falls in breach of their obligations, the company may bring a claim against the director and in some circumstances, a fellow director or shareholder may bring an action through a derivative claim.
The risk to the director in breach is legal action being taken against them for monetary damages (compensation in respect of any financial losses as a result of their actions), removal as a director and/or in future being banned from directorship in alternate companies.
Shareholders
Shareholder disputes often involve a minority shareholder bringing a claim against majority shareholders or involve a shareholder bringing a claim against a director.
Minority shareholders do still retain rights and may bring a minority shareholder claim. A minority shareholder may also commence an “Unfair Prejudice Petition” action if the company’s affairs are being, or have been, conducted in a way which is unfairly prejudicial to their interests as a shareholder.
Other avenues available to shareholders are claims in accordance with the Companies Act 2006 or even the winding up of the company, if that is a “just” and “equitable” course of action.
Proactive measures to prevent disputes - Is there anything i can do to try and avoid a drawn-out legal dispute?
To avoid lengthy legal battles, preparation is key. When forming a company, carefully draft the articles of association and create a shareholders’ agreement. These documents can serve as a foundation for resolving potential conflicts.
In the event of a dispute, seek legal advice promptly. If the dispute involves a director’s salary, be aware of any potential employment law claims, which often have short time limits for filing.
Our dedicated Dispute Resolution Team, led by Stephen Nixon is here to help.
They recently secured a favourable settlement for former directors, resolving the matter before it escalated to litigation. The settlement included a significant contribution to legal costs, underscoring the importance of expert legal guidance.
Our clients have expressed gratitude for the team's dedication and expertise, noting their instrumental role in achieving a successful outcome.
They said: “Thank you for your hard work. You have been instrumental in the success of our case… [Stephen and Poppi] have both been amazing”.
If you find yourself facing a director or shareholder dispute, don’t hesitate to reach out for assistance. With the right support, you can navigate these challenges and protect your interests.
To speak to Commercial Litigation Solicitors in Walsall, Sutton Coldfield, Cannock and the wider West Midlands region, Visit the website or email litgation@enoch-evans.co.uk
Pictured from left to right: Stephen Nixon and Poppi Herald