Corporate and shareholder disputes are becoming more frequent and complex, driven by increased regulatory scrutiny, economic pressures, and evolving business structures. When shareholders and directors clash over governance, financial decisions, or fiduciary responsibilities, businesses can face financial losses, reputational damage, and even dissolution.
Corporate disputes are not just legal battles – they can threaten the financial health, stability, and reputation of a business – so it’s crucial to address them early.
Directors owe statutory and fiduciary duties to act in good faith, with due care and in the company’s best interest. Therefore, if allegations of self-dealing, conflicts of interest, mismanagement, or acting for personal gain rather than shareholders’ interest arise, it can result in legal action.
Common Causes of Corporate and Shareholder Disputes
Breach of directors’ duties
Unfair prejudice claims (minority shareholder protections)
When majority shareholders or directors act in ways that unfairly harm minority shareholders, courts may intervene. Some common examples of unfair prejudice claims include:
- Denying dividends while the majority shareholders benefit from excessive salaries.
- Diluting shares to reduce a minority shareholder’s influence.
- Excluding minority shareholders from management or decision-making.
Deadlock in decision-making
When shareholders or directors cannot agree on key business decisions, it can jeopardise the company. These disagreements leading to the paralysis of the company is particularly common in 50/50 partnerships without dispute resolution causes.
Buyout and exit strategy disputes
Disagreements over how shareholders exit the business, including valuation disputes and restrictive clauses in shareholder agreements.
Breach of shareholder agreements
Failure to honour pre-emption rights, non-compete clauses, or dividend policies can lead to disputes, for example, a company issues new shares without offering them to existing shareholders first, violating contractual agreements.
How a Commercial Litigation Lawyer Can Help
At Glaisyers ETL, our Commercial Litigation team goes beyond providing legal advice. The team actively protect clients’ interests by pursuing or defending claims, negotiating settlements, and ensuring compliance with corporate laws.
Strategic pre-litigation advice and risk mitigation
Before litigation becomes necessary, we take proactive steps to assess legal risks and explore alternative resolutions. This includes:
- Conducting early case assessments. This includes analysing contracts, corporate records, and relevant communications to evaluate the strength of potential claims.
- Advising directors and shareholders on their legal rights and obligations to prevent breaches of duty or unfair treatment.
- Engaging in pre-action correspondence: sending formal legal notices (e.g. letters before action) to demand compliance or propose settlements.
- Exploring alternative dispute resolution (ADR): facilitating mediation or arbitration to reach a commercially viable resolution without court intervention.
Pursuing or defending claims in litigation
When out-of-court solutions are not viable, possible options include:
- Unfair prejudice petitions: Representing minority shareholders who have been unfairly treated, seeking remedies such as share buyouts or director removal
- Derivative actions: Initiating legal proceedings on behalf of a company where directors have breached their fiduciary duties, often involving allegations of fraud, mismanagement, or conflicts of interest.
- Breach of directors’ duties: Prosecuting or defending claims related to self-dealing, misfeasance, or failure to act in the company’s best interests.
- Breach of shareholder agreements: Enforcing contractual rights related to dividends, voting power, pre-emption rights, and share transfers.
- Winding up petitions: Assisting shareholders in seeking the dissolution of a company when disputes make continued operation impossible.
Defending against shareholder and director claims
For businesses and directors facing legal action, defence strategies include:
- Challenging unfair prejudice petitions by demonstrating that business decisions were made in good faith and in the company’s best interests.
- Defending directors against breach of duty claims by proving compliance with fiduciary responsibilities or showing that actions were taken with proper authority.
- Contesting derivative actions by arguing lack of standing or insufficient grounds for shareholder-led disputes.
- Resisting winding up applications to prevent forced company dissolution when disputes can be resolved through alternative measures.
Get in touch
We can help you navigate complex disputes with a strategic and commercially focused approach, aiming to resolve conflicts efficiently while safeguarding business operations and shareholder value. Get in touch with the Commercial Litigation team today for more information or guidance.
