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Boardroom disputes solicitors
Boardroom disputes between directors can threaten the management, ownership, and value of a business and cause significant disruption to its running, often putting its future at risk. They are often concerned with board control, shareholder rights, directors’ duties, access to information and the future ownership of the company, its operations and reputation.
JMW’s commercial litigation solicitors advise directors, shareholders and companies on the full range of boardroom disputes. These include deadlock, attempts to remove directors, exclusion from management, breaches of duty, misuse of company assets, unfair prejudice claims and disputes concerning the operation of shareholders’ agreements and articles of association.
At JMW, we assess the legal and commercial position at an early stage, identify the available remedies and develop a strategy suited to the client’s objectives. That may involve taking urgent protective steps, seeking a negotiated solution or buy-out terms, exploring mediation or pursuing litigation.
We understand that boardroom disputes can quickly disrupt day-to-day operations and business decisions, and they can unsettle employees and customers and damages key commercial relationships. If the dispute becomes public, it can also affect confidence in the business and make the dispute harder to resolve. To speak to a solicitor about a boardroom dispute, contact us on 0345 872 6666, or fill in our online enquiry form and we will get back to you.
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Hello. I'm Steve Morris. I'm a Partner in the Commercial Litigation department at JMW. In the disputes that I see, it's often the case that there's misunderstanding or blurring of the lines between directors and shareholders.
The directors are appointed by the company to act on its behalf shareholders or members as they're often referred to own some or all of the company through their investments. They have an entitlement to sharing the profits of the company. Duty are typically owned by directors rather than shareholders. Director's duties arise from a number of sources So the company's articles, statute, the most obvious example is the company's Act, the requirement, the director acts in the best interests of the company.
There's also common law duties, so duty of confidence and also our fiduciary duty to act in good faith. The articles of association are compulsory company has to have articles, whereas the shareholders' agreement is a voluntary document. The articles bind the company its members, its shareholders and its directors, and there are public documents. The shareholders agreement is a private document, and it's only by the parties to the agreement, typically the shareholders themselves.
So shareholders' rights are typically enacted through their ability to vote at shareholders' meetings. A shareholder with over fifty percent of the shares in in a company can pass of itself an ordinary resolution. More serious decisions are made by way of special resolution which requires over seventy five percent of the shareholders to vote in favor of Well, in the case of minority shareholders, the sorts of examples we tend to see is directors acting in breach of their high judiciary duties, actions being taken which benefit a certain class of shareholders over others in the case of equal shareholdings.
The usual classic problem is a deadlock situation whereby each set of fifty percent shareholders can block an ordinary resolution being passed but can't actively make that decision of themselves and that creates a deadlock situation. Well, these sorts of disputes highlight why it's so important to have a properly drafted set of articles from the outset and also ideally shareholders' agreement in place. Monarch shareholders can issue a petition to the court if they believe that their minority interest has been unfairly prejudiced. Alternatively, a minority shareholder could issue a set of proceedings called a derivative action, which is where the shareholder effectively seeks the court's permission to step into the shoes of the company and take action usually against directors who are acting unlawfully or in breach of their fiduciary duties on the part of the company.
A last resort is also for an application to be made to court for an order for the winding up of the company.
How JMW can help
JMW provides expert legal services and advice to deal with a broad range of company disputes, including:
Boardroom disputes often engage several overlapping legal relationships. A director may also be an employee and shareholder, while the relevant rights may arise under the Companies Act 2006, the company’s articles, a shareholders’ agreement, a service agreement or other duties owed to the company. Our commercial litigation team works closely with and often draws upon the specialist expertise of colleagues in our corporate, corporate restructuring and employment law departments, where the dispute requires coordinated advice..
Ultimately, the resolution of a boardroom dispute will depend on the nature of the dispute, the company’s governance documents and the commercial objectives of those involved. In some cases, a negotiated solution or managed exit may be possible. In others, formal steps may be needed such as director removal, unfair prejudice proceedings, a derivative claim or, in more serious cases, winding up the company. We can help you assess the available options so you can make an informed decision on the best course of action for resolving the dispute.
Meet our team of boardroom dispute solicitors
Our boardroom disputes team includes experienced commercial litigators who act for directors, shareholders and companies in complex and high-value disputes.
What constitutes a director dispute?
A boardroom dispute concerns the management, ownership or control of a company. It may arise between directors, between shareholders, or between directors and shareholders..
Company director disputes often develop where there is a breakdown in trust or communication at board level. In some cases, directors may find themselves in direct conflict over key decisions, while in others, tensions arise due to competing personal interests or concerns about how the business is being managed.
Disputes between directors are particularly problematic in companies where ownership is evenly split, as this can lead to a deadlock situation where no decisions can be made. This can prevent the business from operating effectively and may ultimately threaten its future.
Common causes of director and boardroom disputes
Director disputes can arise for a wide range of reasons, but they are often rooted in disagreements over how a company should be run or concerns about the conduct of those in control. Some of the most common causes of company director disputes include:
- Breach of directors’ fiduciary duties: where a director is suspected of acting in their own interests rather than in the best interests of the company.
- Conflicts of interest: including situations where a director has competing business interests or undisclosed personal gain.
- Disagreements over strategy: such as differences in opinion about the company’s direction, growth plans or financial decisions.
- Financial mismanagement: concerns about the handling of company funds, accounts or investments.
- Deadlock in decision-making: particularly in companies with equal shareholdings, where neither party can gain a majority.
- Attempts to remove a director: which can lead to disputes over procedure, fairness and compensation
- Breaches of the company’s articles or shareholders’ agreement
- Unfair treatment of minority shareholders: including exclusion from decision-making or withholding of information
In many cases, these issues overlap and escalate over time, turning a manageable disagreement into a serious boardroom dispute. Involving a boardroom disputes lawyer from the JMW Commercial Litigation team as early as possible will allow you to identify the underlying legal and commercial issues, clarify the rights and obligations of those involved and guide you towards a practical and cost-effective resolution before the situation escalates.
How director disputes are resolved
Once a dispute escalates and the parties’ positions become entrenched, it can become harder to resolve the dispute amicably. However, in most cases, avoiding the cost, disruption and publicity of litigation is in everyone’s best interests. The appropriate strategy will depend on the parties’ legal rights, the company’s governance documents, the commercial value at stake and whether the business can continue to operate while the dispute is unresolved. Our skilled and experienced commercial lawyers can often resolve disputes through negotiation or alternative dispute resolution methods such as mediation. We can assist in developing, negotiating and documenting an agreed strategy at any stage of a dispute.
The legal and governance position
Seeking legal advice from JMW at an early stage will clarify your position and prevent the dispute from escalating. We review the articles of association, shareholders’ agreement, service agreements, board and shareholder resolutions, financial information and relevant correspondence to understand your legal position, your rights and obligations as a company director or shareholder, and the practical options available to protect your interests.
Negotiation and mediation
In many cases, director disputes can be resolved through negotiation or alternative dispute resolution methods such as mediation. These approaches are more cost-effective than court action, and often allow for the preservation of business relationships where possible. Where necessary, we can also help with protective steps such as protecting company assets and information, preserving evidence, addressing proposed board or shareholder action, or considering urgent court relief.
Formal dispute resolution
Where informal discussions are unsuccessful, more formal dispute resolution steps may be required. This can include structured negotiations, legal correspondence or the use of specific remedies such as unfair prejudice petitions or derivative claims.
Court proceedings
Not all director disputes can be resolved through negotiation or alternative dispute resolution. Where agreement cannot be reached, or urgent intervention is required, we bring and defend proceedings including unfair prejudice petitions, derivative claims, injunction proceedings and just and equitable winding-up petitions.
Our team will guide you through every stage of the process, adopting a strategic and commercially focused approach to protect your interests and achieve a resolution aligned with your objectives.
When should I seek legal advice for a boardroom dispute?
Seeking legal advice at an early stage will make a significant difference to how a boardroom dispute develops and is ultimately resolved. In many cases, what begins as a relatively minor disagreement between directors and shareholders can escalate if not properly managed, particularly where there are underlying issues relating to control, decision-making or financial interests.
You should seek advice from a commercial litigation solicitor as soon as there are signs of a breakdown in communication or trust at board level. Early advice allows you to understand your legal position, including your rights and obligations as a company director or shareholder, and make sure that you do not inadvertently breach your fiduciary duties while responding to the situation.
Legal advice is particularly important where:
- There is a deadlock affecting the company’s ability to operate
- You are being excluded from decision-making or access to information
- There are concerns about financial mismanagement or conflicts of interest
- A director’s removal is being proposed or contested
- The relationship between shareholders and directors has broken down
Early advice is particularly important before board meetings, shareholder resolutions, removals, resignations or communications that may affect the parties’ legal position.
FAQs about director disputes
- Can a director be removed from a company?
A company may remove a director by ordinary resolution under section 168 of the Companies Act 2006. A specific statutory procedure applies, including special notice and rights for the director to make representations and be heard at the meeting. The company’s articles, any shareholders’ agreement and the director’s service agreement must also be reviewed, as the director may also have employment rights, shareholder rights or contractual claims that need to be considered as part of the overall strategy.
The removal of a director can be complex and often contentious. If it is not handled carefully, it can give rise to further disputes, including employment, shareholder or unfair prejudice claims, and prolong disruption to the business.
For this reason, we strongly advise taking advice before steps are taken to remove a director. Where possible, a negotiated solution may allow one party to exit the business on agreed terms, helping to resolve the dispute with minimal disruption to the company.
- What is an unfair prejudice claim?
A shareholder may petition the court under section 994 of the Companies Act 2006 where the company’s affairs have been conducted in a way that is unfairly prejudicial to their interests as a member. In practice, this can include conduct that harms a shareholder’s position, particularly where those in control of the company act in a way that disadvantages minority shareholders. Examples include exclusion from decision-making, being denied financial benefits such as dividends, or being treated differently from other shareholders without proper justification.
The court has wide powers, and a common remedy is an order requiring one shareholder’s shares to be purchased. The court may also make other orders, including orders regulating the management of the company.
Common examples of unfairly prejudicial conduct include breaches of duty by directors, such as misappropriation of company assets, or excluding a shareholder-director from the management of the company in circumstances where they had a legitimate expectation of being involved. The unfair prejudice procedure can therefore be a useful remedy for minority shareholders, particularly in smaller private companies where the relationship between shareholders is more akin to a partnership.
- What is a derivative claim or derivative action?
A derivative claim, also known as a derivative action, allows a shareholder to bring a claim on behalf of the company, usually against a director, where the company itself is unwilling or unable to take action. This often arises where the alleged wrongdoing involves those in control of the company.
Derivative claims are subject to court approval and are typically used in cases involving alleged breaches of fiduciary duties or other misconduct by directors. A corporate or boardroom disputes lawyer can advise on whether a derivative claim is appropriate and guide you through the process.
Where this remedy is pursued, the court will provide directions as to how the claim should be conducted. The court may also consider whether the shareholder should receive an indemnity in respect of the legal costs of bringing the claim, but this will depend on the circumstances and should not be assumed.
- Can a company be wound up due to a director dispute?
A shareholder may ask the court to wind up a company where it would be just and equitable to do so. This may be an option where the relationship between directors or shareholders has broken down, there is deadlock, or the company can no longer be run in the way the parties originally intended.
Winding up is a serious step and is usually a last resort. The court may refuse to wind up the company where there is another suitable remedy available, such as an unfair prejudice petition or a buy-out of one party’s shares. It is therefore important to take advice on whether winding up is the right route, or whether another option would better protect your position and the value of the business.
- What can I do if I am in a deadlock with another director?
Deadlock situations commonly arise where directors or shareholders hold equal control and cannot agree on key decisions, preventing the company from operating effectively. In these circumstances, the first step is to review the company’s Articles of Association and any shareholders’ agreement, as these may contain mechanisms for resolving disputes, such as casting votes, escalation procedures, buy-out provisions or other deadlock provisions.
If no clear mechanism exists, legal advice can identify the most appropriate way forward. Options may include negotiation, restructuring ownership, facilitating a managed exit, or, in some cases, seeking court intervention to break the deadlock and protect the future of the business.
- How do directors’ duties affect a boardroom dispute?
Directors owe statutory and other duties to the company, including duties to act within their powers, promote the success of the company, exercise independent judgment, exercise reasonable care, skill and diligence, avoid conflicts of interest and declare interests. These duties are central to how a company is managed and are often at the heart of boardroom disputes.
Allegations that a director has breached these duties, such as by diverting business opportunities, misusing company assets or acting for personal gain, can lead to serious disputes and potential legal claims. Establishing whether a breach has occurred, and what follows from that breach, is often an important step in resolving a boardroom dispute.
- Can director disputes be resolved without going to court?
Boardroom disputes are frequently resolved through direct negotiation, mediation or an agreed purchase or sale of shares. These options are usually less disruptive and more cost-efficient than court proceedings, and may help preserve professional relationships where possible.
However, court proceedings may be necessary where urgent protection is required, agreement cannot be reached or a binding remedy is needed.
- How long does it take to resolve a director dispute?
Every boardroom dispute is different, so there is no fixed timescale for resolution. In some cases, a negotiated exit can be agreed relatively quickly, particularly where both sides are willing to engage constructively.
Where the issues are more complex, or proceedings involve contested evidence, disclosure, expert valuation evidence or a trial, the process will usually take longer. Taking early legal advice can help narrow the issues, keep the matter moving and improve the chances of reaching a timely and effective resolution.
Talk to us
If you need legal advice in relation to resolving director disputes, contact JMW today by calling 0345 872 6666. Alternatively, fill in our online enquiry form and we will get back to you.
