Resolving Shareholder and Director Disputes through Mediation
Shareholder and director disputes are all too common. Business is tough and difficult decisions have to be made. In this article I shall explore what you can do if you are in the midst of a shareholder/director dispute and how to avoid disbanding the business or commencing liquidation. If you are already in the end stages of your business, I will help you understand how to negotiate pragmatic and workable solutions.
What is a shareholder/director dispute and does this apply to me?
A shareholder/director dispute can be described as conflict or a significant and impactful disagreement between one or more shareholders and/or directors in a business.
Shareholders and directors can have management functions and control over the day-to-day running of an organisation. An impactful disagreement can frustrate normal business activity and prevent a business operating effectively.
If you are a shareholder/director or are dealing with shareholders/directors who have fallen out, it is important to seek support, advice and guidance, and intervention where needed. If your business is unable to operate as normal because of a shareholder dispute, urgent action is needed.
What usually happens if shareholders cannot agree a way forward?
There are some key outcomes where a shareholder/director dispute becomes intractable. The key concern is that the business may need to cease trading and this may be a decision imposed by a third party. Before the termination of a business, other more impactful issues often lead up to this moment. These include, financial concerns (profit warnings, cash flow issues, income stagnation and liquidity issues), people matters (morale, efficiency and productivity, retention), and reputational matters such as to cause harm to the reputation of the business and loss of trust from clients.
What does liquidating my business mean?
Liquidating a business means to stop trading and identify what value a business has, what it owes and how everything is divided up. This is a final step which once complete cannot be reversed.
How do I negotiate a settlement?
Liquidation or shareholder/director disputes can and should be supported by proper negotiation and facilitated discussions. Settlement between shareholders/directors can be achieved through:
- being clear about expectations and the position of the business, and its ability to meet everyone’s expectations;
- reflecting on what each individual shareholder/director is seeking and reality checking potential outcomes;
- being fully informed and seeking independent advice where appropriate;
- understanding that compromise is part of the negotiation process and should be expected to achieve agreement.
What should I avoid when negotiating with other shareholders?
As in all negotiations, the ultimate purpose is to agree outcomes that work and are amenable. Such discussions can be difficult due to the nature of the situation. Here are my top tips to avoid some pitfalls:
- Be formal and not emotive. Avoid using language and intentions that are vague and unclear.
- Deal with emotions. Whilst there is a lot of advice that suggests avoiding the emotion, I would advocate to deal with it. Understanding people’s emotions may lead to better outcomes.
- Be objective. Make decisions with your best interests in mind and ensure that you are fully appraised of your rights and obligations.
- Know when to walk away. Where the deal presented does not serve your best interests, do not feel compelled to accept it. Always take time to reflect on the impact any agreement may have on you beyond the negotiation table.
- Time sensitivity – more speed, less haste. If you are under a time pressure to agree a way forward, use your time wisely. Ensure that you prioritise your points and agree these. Time may prevent all elements being agreed and you may need to arrange a further negotiation to discuss the outstanding details, if this is needed.
- Prepare fully. Ensure that you have written down all the points you need to raise and include all the elements that you are willing to compromise on, and aspects that you cannot.
- Use a Mediation for one service. This is a service which is conducted one-on-one between the mediator on the one hand and one of the parties on the other. The prime objective of one-on-one mediation is to help or coach parties in conflict management with its ultimate aim to get better results in a mediation proper.
Using mediation techniques to help you move forward
Mediation is a form of negotiation. You will be engaging with me as your mediator on a neutral basis. My role will be to assist you with your discussion to help you find common ground, express views and concerns, and agree outcomes that work for everyone. You will be leaning on my several decades of commercial experience and expertise with negotiating some of the most complex business based disputes such as those that affect shareholders/directors.
Mediation is centred on facilitating productive discussions and helping you move forward. Many of the negotiations I have been engaged with have started with gaining clarity of the issues and expectations. When we truly understand this, we can start to open dialogue about what will work for you to close the deal.
My role also extends to assisting parties on a one-on-one basis to better equip parties to manage a dispute.
Why and when to call in the Mediator?
Shareholder/director disputes are the end result of being unable to communicate properly for a period of time. I always advise clients to seek independent neutral support from the outset. This is very important where the big decisions need to be made. It is equally important to engage with a professional like me where your fall-out is causing issues with the day-to-day running of the business.
Mediation should be seen as a key support service which can be accessed by shareholders/directors to support boardroom meetings, key decision-making meetings, and end-of-business conversations such as winding up or liquidation proceedings.
New to the scene is the mediation for one service. As I discussed above, this is a service which is conducted one on one between the mediator on the one hand and one of the parties on the other. The prime objective of one-on-one mediation is to help or coach parties in conflict management with its ultimate aim to get better results during the mediation proper.
In fact, I advocate mediation coaching and conflict management tools should form part of a shareholders and directors play book. Shareholders and directors have packed agendas ranging from strategy to budget and deep risk management discussions. Conflict is a risk which should be identified and tools to better manage this should form part of a shareholders or directors skill set.
