At the outset of a new business venture the risk of a dispute may seem far fetched. However, the practical reality that we often see is that disputes in one form or another frequently arise over time for example due to differences of opinion. These differences can easily result in complete deadlock in decision making.
The prevailing desire for ultimate control over a prospering enterprise frequently results in oppressive conduct against minority shareholders for example by way of dilution of shares, exclusion from management, and so forth. These risks are elevated in the case of smaller “quasi-partnership” businesses with 50/50 shareholders and directors. Directors may find themselves in a position of conflict between their fiduciary duties on the one hand to the company, and duty of care to shareholders, and their personal interests. This may also result in causes of action or claims becoming available for the company against those directors who have breached their duties. Where there is a trust involved, beneficiaries may also claim that directors have been involved in a breach of trust, or the directors may be liable to the corporate trustee arising from their conduct contrary to the corporate trustee’s obligations as trustee for the relevant trust.
The risk of expensive and protracted litigation is rife, despite the fact that it can frequently be avoided.
You will find that the importance of a carefully crafted shareholder’s agreement cannot be emphasised more by any corporate lawyer. It frequently avoids the vast expense, stress and wasted opportunities that arise from and accompany bitterly fought disputes between shareholders / directors / beneficiaries. Shareholder agreements do so by making provision for various scenarios and circumstances which would otherwise be inadequately specified in the company’s constitution or under the Corporations Act 2001 (Cth). Key issues typically covered include:
Common actions include:
In Re SP Private Holdings Pty Ltd  VSC 142 (23 March 2021) the Victorian Supreme Court were fairly robust in the management of the timetable. Briefly, a 50% shareholder and director in a group of companies sought relief from oppression alleged to have been caused by the other 50% shareholder and director. The application was amended less than one month before judgement to seek the appointment of a provisional liquidator, relying on the just and equitable ground for winding up.
In short, there was evidence of an extremely dysfunctional relationship between the parties, a bitter dispute, clear deadlock, and deep acrimony. Whilst the Court will be reluctant to wind up a solvent company (this being a rather drastic and last resort measure), there was no impediment to a just and equitable winding up in the circumstances. There was clear deadlock, deep acrimony, thereby rendering the continuation of the enterprise futile. There was no utility in a provisional liquidator being appointed and a winding up was ordered efficiently and in keeping with the overriding objective of the Court to facilitate the just, quick and cheap resolution of the real issues.
Contact our corporate lawyers for assistance in relation to the above. Our commercial lawyers, business lawyers, and disputes lawyers provide expertise in corporate and commercial advisory services as well as litigation and dispute resolution, and specifically shareholder disputes.
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Sydney NSW 2000
T: +61 2 8005 7388
The information provided in this article is provided by way of general information only. It does not constitute legal advice, and should not be relied upon as such. Specific independent legal advice should be obtained before deciding to act, or not to act, upon the views expressed or information contained in this article.
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Whether you have a high-tech startup, are looking to do a large-scale joint venture or buying an investment property with friends/family, avoid uncertainty and disputes with this full-form, top-tier-quality Shareholders’ Agreement (which can also adapt to be a Unitholders’ Agreement). Suitable for any co-ownership arrangement, this document has been meticulously drafted to standards that meet or even exceed those of the largest Australian and international law firms.
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