Navigating Disputes When Things Go Wrong

In David Gordon’s article about informal arrangements in business settings, he considered a case study in which disputing shareholders initially thought there was no shareholders’ agreement to manage their rights and responsibilities, but who eventually found the “lost” agreement. In this article, our dispute resolution team consider the risks of not having a shareholders’ agreement in place.

In the world of business, disputes among shareholders can arise for various reasons, including disagreements over management decisions, financial distributions, or differing visions for the company’s future. When such conflicts escalate, they can threaten the stability and continuity of the business. In these scenarios and where there is no shareholders’ agreement in place, parties can end up negotiating settlement agreements, or worse, fighting things out in court.

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The Risks of Not Having a Shareholders' Agreement

In the absence of a shareholders' agreement, disputes between shareholders can quickly escalate into costly and time-consuming litigation if compromise cannot be reached. Charlotte Woolven-Brown of our dispute resolution team says:

“Without predefined mechanisms to resolve disagreements, such as deadlock provisions or pre-agreed exit strategies, disputes can lead to court proceedings. Shareholders may decide to pursue claims for unfair prejudice or even seek to wind up the company where things get particularly fractious. Such actions can also lead to irreparable damage to the business, loss of value, and reputational harm. Court proceedings are typically complex, time-intensive, and costly, sometimes requiring extensive valuation evidence, expert reports and third party evidence. Furthermore, the publicity associated with litigation can tarnish the company’s reputation, deter investors, and disrupt operations. It is essential to weigh these risks carefully and consider mediation or other forms of dispute resolution as alternatives to court.”

Settlement agreements are one way of dealing with the fall out and can provide a solution where parties are willing to cooperate. A properly prepared settlement agreement will outline the terms under which the parties agree to settle their differences, often avoiding the need for litigation. These agreements can cover a wide range of issues, including financial settlements, the transfer of shares, and the terms of future conduct between the parties.

When disputes arise in the absence of a shareholders’ agreement, the risks of ending up in court to battle things out become dauntingly apparent. Although not always appropriate, settlement agreements can serve as a crucial mechanism for resolution in the event of a dispute.

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