You Are in a Shareholder Dispute and the Company Is Paralysed
Shareholder disputes are among the most destructive commercial conflicts. They can paralyse decision-making, drain cash through legal costs, damage client and supplier relationships and ultimately destroy the value of the business. Whether you are a minority shareholder being squeezed out, a majority shareholder dealing with an obstructive minority or a 50/50 partner in deadlock, the Corporations Act provides remedies - but the right strategy depends entirely on your position and your objectives.
What You Need To Know
Section 232 of the Corporations Act allows a shareholder to apply to the court for relief where the affairs of the company are being conducted in a manner that is oppressive, unfairly prejudicial to or unfairly discriminatory against the applicant.
Oppression can include exclusion from management, failure to pay dividends while directors draw excessive salaries, diversion of business opportunities, issuing shares to dilute a minority shareholder and failure to provide financial information.
The court has broad remedial powers under section 233, including ordering the purchase of shares by either party, winding up the company, modifying the constitution, appointing a receiver or restraining specific conduct.
In 50/50 deadlock situations, neither party can pass ordinary or special resolutions. If the shareholders agreement does not contain deadlock resolution mechanisms, the company may be wound up on the just and equitable ground.
A shareholders agreement is the single most important document in preventing disputes. If you do not have one, the default rules in the Corporations Act and the company constitution apply - and these rarely produce satisfactory outcomes.
Directors involved in shareholder disputes have ongoing fiduciary duties to the company. Using company resources for personal advantage in the dispute, or failing to act in the company's interests, can create additional liability.
What To Do Right Now
Clarify your objectives
Do you want to stay in the business and remove the other party? Do you want to sell your shares at a fair price and exit? Do you want the company wound up? Your strategy and the remedies you seek must align with your actual objective.
Review the shareholders agreement and constitution
If a shareholders agreement exists, check whether it contains pre-emptive rights, drag-along or tag-along provisions, deadlock resolution mechanisms or valuation formulae. These provisions may prescribe or constrain your options.
Secure access to company information
As a shareholder and/or director, you have statutory rights to access company records. If you are being denied access to financial statements, bank accounts or other records, this may itself constitute oppressive conduct.
Protect the company's assets
If you believe the other party is misusing company funds, diverting opportunities or making decisions that harm the company, document everything. If assets are at risk of dissipation, a freezing order may be necessary.
Get legal advice before taking any action
Shareholder disputes are strategically complex. The wrong move - such as convening a meeting without proper notice, removing a director improperly or withholding information - can weaken your position and create grounds for the other side to bring their own claims.
How We Can Help
We act for shareholders and directors in shareholder disputes, including oppression proceedings under section 232 of the Corporations Act, winding up applications on the just and equitable ground, derivative actions and disputes over share valuations and buy-outs. We also draft and advise on shareholders agreements to prevent disputes before they arise.
Don't wait until your options narrow.
We can usually assess your position within a single consultation. Call us or send an enquiry and we will get back to you promptly.