Director Disputes

Due to the complexities involved in running a limited company, disputes amongst company directors and shareholders can significantly derail the operations and success of a business.

Efficiently understanding and resolving these disputes is vital for maintaining a harmonious working environment and ensuring the company’s forward momentum.

Director disputes can emerge from a variety of issues, including but not limited to, breaches of director’s duties, conflicts of interest, or disagreements on the strategic direction of the company. Such disputes can lead to a fractured board, affecting the company’s day-to-day operations and potentially putting the success of the company at risk. Early recognition of potential disputes is crucial for timely and effective intervention.

Legal Framework and Director’s Duties

Company law, specifically the Companies Act 2006, mandates that directors should act in a manner that promotes the success of the company. they should always consider the interests of shareholders and employees alike. This includes fulfilling their duties with diligence, avoiding conflicts of interest, and ensuring their actions benefit the company and its stakeholders at large.

In the face of director and shareholder disputes, these foundational duties serve as a guide for resolution. The act emphasises the need to promote the success of the company above individual or factional interests.

Common causes of Director Disputes

Many disputes arise from a perceived breach of director’s duties, such as failing to act in the best interests of the company or engaging in activities that present a conflict of interest.

Disagreements over the strategic direction of the company can also lead to tensions between board members and shareholders, especially minority shareholders who may feel their interests are not adequately represented or protected.

Resolving Director Disputes

When internal resolution efforts fail, it may become necessary to seek legal advice or engage in formal dispute resolution mechanisms.

Outlined below is an overview of the common approaches:

Negotiation and mediation:

Initially, parties involved in a dispute often attempt to resolve their differences through negotiation. This can involve direct discussions between directors, facilitated negotiations, or mediation sessions conducted by a neutral third party. Negotiation and mediation can help parties find mutually acceptable solutions without the need for formal legal proceedings.

Alternative Dispute Resolution (ADR):

ADR methods, such as arbitration or expert determination, offer alternatives to traditional litigation for resolving director disputes.

Arbitration involves submitting the dispute to an independent arbitrator or panel, whose decision is binding on the parties.

Expert determination involves appointing an expert to assess specific issues or provide recommendations.

ADR processes are often faster, more flexible, and less formal than court proceedings.

Court proceedings:

If informal methods of resolution are unsuccessful or inappropriate, directors may resort to litigation through the courts.

Company policies and procedures:

Enforcing existing policies and procedures related to conflict resolution within the company can provide a structured approach to handling disputes.

These might include specific steps to follow when a conflict arises, aimed at ensuring a fair and objective resolution process.

Removal of a Director:

In extreme cases, it may be necessary to remove a director from their position. The process for removing a director is typically outlined in the company’s articles of association, the Companies Act 2006, or any applicable shareholders’ agreement.

This step should be taken as a last resort, as it can lead to further legal and operational complications.

Shareholders’ Intervention:

In certain cases, particularly in smaller companies or where directors are also significant shareholders, other shareholders can intervene to resolve the dispute. This might involve calling a general meeting to address the issue and, if necessary, voting on resolutions to resolve the dispute.

Preventing Disputes

Preventative measures are key to averting disputes. Companies should ensure that clear, comprehensive shareholders’ agreements and directors’ service agreements are in place. These papers outline what everyone involved must do, creating a strong structure for how the company works and makes decisions. Moreover, fostering an environment of open communication and transparency in day-to-day management can pre-empt potential issues from escalating into significant disputes.

How can ARC assist?

ARC Costs has a large legal team of expert commercial litigation solicitors who have a history of success in these cases. We would be happy to pass on your details to assist in your case. 

In addition to introducing you to a solicitor, we can also assist in the recovery and negotiation of legal costs in land dispute cases, whether you are the paying or receiving party.

ARC Costs are highly experienced in advising and assisting with costs issues and disputes in different areas of law. As Costs Draftsman and Costs Lawyers, we can assist you with your commercial litigation costs issues.

Should you wish to discuss your costs query with us, please contact us on 01204 397302 or via email at info@arccosts.co.uk. Alternatively, you can complete our online query form, and we will contact you to discuss your query further. We can provide expert legal advice on costs in our free, no obligation initial consultation.

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