How to avoid getting bogged down in shareholder dispute misery: Dominic Blakeley

We have been seeing a marked increase in shareholders asking for advice involving disputes around capital injections into businesses in exchange for an equity stake which have resulted in the dilution of shareholdings.

It is perhaps not a surprise to see that directors not following informal arrangements or policies around the payment of dividends is one of the main areas causing discord at the moment.

These are typical gripes which have arisen with greater frequency in the recent past as shareholders look to eke out as much income as they possibly can for themselves in the current climate.

However, topping the list of issues which we are currently seeing cause most shareholder consternation, is fraud/misappropriation of company assets; these disputes are typically centred around director/shareholders dipping into the company bank account or setting up opaque trading arrangements to extract money for personal benefit.

Although it may seem that these are straightforward claims to make out, that is seldom the case; they often involve complicated arguments around knowledge of and acquiescence to the conduct in question.

Whilst the temptation at the very outset of a shareholder dispute can be to turn to a business coach or non-specialist lawyer, or for the shareholder either to try and deal with the situation themselves or even to bury their head in the sand, none of these approaches are advisable.

In fact, there is a danger, that, by going down any of those paths, shareholders end up taking steps which prejudice their legal positions and ultimately increase the likelihood that resolution is not going to be achieved without involvement of the courts.

The key to shareholders securing best possible outcomes hinges on early intervention from specialist lawyers.

By developing an understanding of the often complex personalities involved (critical in the context of disputes involving family-run businesses) and with a good working knowledge of the myriad of available claims and remedies, an expert drafted in right at the start of a breakdown is best placed to devise an effective dispute resolution strategy.

The importance of exploring and having experience of alternative dispute resolution at an early stage cannot be overstated because shareholder disputes are notoriously expensive claims to run to trial.

What’s more, disputes are also very disruptive with stakeholders often becoming distracted by personal enmity.

This loss of business focus decreases productivity, eroding shareholder value, with the situation worsening the longer matters remain unresolved.

If court intervention is required, then it is key to have a specialist onboard who has a thorough practical understanding of the tactics which can be deployed by both minority and majority shareholders; this can ultimately make the difference between obtaining a decent outcome in a difficult position or snatching defeat from the jaws of victory.

Whether tensions are simmering or a relationship has reached the point of irretrievable breakdown, expert advice can help minimise the chances of a breakdown morphing into an acrimonious business divorce which, in the blink of an eye, can eviscerate shareholder value.

Dominic Blakeley is Legal Director for Clarion