Directors and shareholders have a wide range of responsibilities, crucial to the running of a business. Unfortunately, disputes can arise between shareholders for many reasons. Solicitors play an important role in resolving shareholder disputes on equitable grounds, seeking fair treatment and just outcomes for shareholders.

Examples of shareholder disputes

Shareholder disputes can arise from various sources and manifest in different forms. Outlined below are some common types of shareholder disputes:

Management decisions:

Disagreements may arise between shareholders regarding strategic decisions made by company management, such as business direction, investment choices, or executive appointments.

Dividend distribution:

Disagreements about dividends can happen when shareholders don’t agree on when or how much money the company should pay out. They might feel they’re not getting their fair share of profits.

Corporate control:

Conflicts may also arise when shareholders, particularly majority and minority shareholders, vie for control over the company. This may involve disputes over voting rights, board composition, or changes in corporate governance structure.

Directors breach of fiduciary duties:

Directors duties include a fiduciary duty to act in the best interest of the company. Allegations of directors or officers breaching their fiduciary duties to the company and its shareholders may arise. This may include conflicts of interest, self-dealing, or negligence, can lead to shareholder disputes and legal action. These claims are brought under the Companies Act 2006.

Oppression of minority shareholders:

Minority shareholders may feel oppressed or unfairly treated by majority shareholders or company management. This can happen when actions harm minority shareholders, causing disagreements and possible legal actions like unfair prejudice petitions.

Share valuation and transfer:

Disputes may arise over the valuation of shares, especially during buyout negotiations or in cases of shareholder exit. Shareholders may disagree on the fair value of their shares, leading to deadlock or legal action.

Breach of shareholders’ agreement:

Shareholders’ agreements outline the rights and obligations of shareholders and may include provisions on matters such as share transfers, decision-making processes, and dispute resolution mechanisms. Disputes can arise if one party breaches the terms of the agreement.

Corporate governance:

Shareholders may challenge the company’s corporate governance practices, such as board independence, transparency, or executive compensation policies. They may take this action if they believe these practices are inadequate or detrimental to shareholder interests.

Mergers and acquisitions (M&A):

Shareholders may argue during mergers and acquisitions if they disagree on the deal terms, company value, or fairness of the process.

Shareholder activism:

Activist shareholders can question management decisions. They can suggest changes to company strategy or governance. They can try to impact the company’s direction through campaigns or proxy battles. This can cause conflicts with other shareholders or management.

Financial mismanagement or fraud:

Disagreements among shareholders can arise from claims of mishandling money, shady accounting, or fraud. This is especially true if shareholders believe their money is at risk or if they were misled about the company’s finances.

Contractual claims:

Shareholders may bring claims for breach of contract, such as breaches of shareholders’ agreements or other contractual arrangements.

Derivative Actions:

Those with a share in the company can bring derivative actions on behalf of the company to enforce rights against directors or third parties.

These are just some examples of the diverse range of shareholder disputes that can arise in corporate settings. Each dispute may require careful analysis of legal rights, corporate governance principles, and potential remedies to resolve effectively.

Resolving shareholder disputes

Resolving shareholder disputes in England and Wales typically involves a combination of informal negotiations, alternative dispute resolution (ADR) methods, and, if necessary, litigation through the courts. Here’s an overview of the common approaches:

Negotiation and mediation:

Initially, parties involved in a shareholder dispute often attempt to resolve their differences through negotiation. This can involve direct discussions between shareholders, 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.

Shareholders’ agreement:

Many shareholder disputes can be resolved or prevented through the terms of a well-drafted shareholders’ agreement.

This document typically outlines the rights and obligations of shareholders, mechanisms for resolving disputes, procedures for share transfers, and other relevant matters.

If a dispute arises, the shareholders’ agreement may provide guidance on how to address it, including provisions for mediation or arbitration.

Alternative Dispute Resolution (ADR):

ADR methods, such as arbitration or expert determination, offer alternatives to traditional litigation for resolving shareholder 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, shareholders may resort to litigation through the courts. Common types of court proceedings for shareholder disputes in England and Wales include:

Company Law and Statutory Remedies:

Shareholder disputes may also be resolved through remedies available under company law statutes, such as the Companies Act 2006.

For example, the court has wide-ranging powers to make orders to regulate the conduct of a company’s affairs or to rectify matters where there has been unfair treatment or oppression of shareholders.

How can ARC assist?

ARC Costs maintains an extensive legal network of expert commercial litigation solicitors with a track record of success on these types of 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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