• 27 JUL 15
    How to deal with a fragmented boardroom

    How to deal with a fragmented boardroom

    Here, commercial law expert Michael Shroot shares his top tips for avoiding boardroom disputes.

    Summer is in full swing, and this year shareholder disputes are heating up alongside the weather, with Woodcocks Haworth and Nuttall’s commercial law department seeing an influx of new dispute-related cases.

    While disagreements between people who own and run limited companies are inevitable, fallouts must be resolved quickly and efficiently to minimise the negative impact on day-to-day business operations as well as preventing disagreements hindering the future survival of the business.

    Why do disputes between shareholders and directors arise?

    Disagreements between people who run and own businesses can arise for a multitude of reasons, for example if parties cannot agree on the future direction of the company, conflicts of interest – if a director is also involved in running other companies, if one director is underperforming or even because of poor relationships between board members.

    Conflict between company directors and shareholders may also come about if a director is taking too much money out of the business, for example through granting themselves a high salary, and preventing shareholders from receiving dividends that are rightly owed to them.

    Anticipating and preventing future disputes

    Planning for potential disputes in advance can help determine the situation and quickly resolve matters. Incorporating contingencies into articles of association or shareholders’ agreements will help clarify the position of each party should a situation like this arise.

    Planning for disagreements will ensure that each person is aware of the role they play in the business, while also helping to identify difficulties between employees at an early stage.

    These documents will need to be reviewed regularly to ensure that they evolve with the business, while contingencies for the events of death, retirement and voting will also need to be made.

    Act fast

    While a difference in opinion between directors can generate a healthy flow of ideas, having a positive effect on a business, sometimes a conflict in personalities may generate irreparable rifts between those operating a company.

    In deadlock situations, directors may need to be removed from the board and the transfer of shares will need to be dealt with.  In these cases, acting fast can not only save time and money, but can also help save business relationships and ensure that the priorities of the business are at the forefront of every decision.

    Specialist knowledge in not only company law but also employment law is essential to protect shareholder, director and company interests, so it is vital that specialist legal advice is sought in the event of a shareholder or director rift.

    For more information on commercial disputes please call Michael Shroot on 0161 761 8061 or email Michael.Shroot@whnsolicitors.co.uk