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Disputes Involving Directors

Resolving Business Disputes

The complexity of companies and corporate matters can invite a range of disputes over time.

No matter the size of your business, it’s unlikely to be immune.

Disputes between shareholders and directors can happen at any time, irrespective of how long you’ve been trading – and should you fall foul of a commercial or internal company conflict, you’re likely to need help from a legal expert to prevent further consequences to your business.

The causes of partner and shareholder disputes are diverse – but have equal ability to cause chaos in your professional world.

Director Disqualification Proceedings

If you are a company director, any conduct which threatens the public interest can lead to a Disqualification Order. Most commonly, this action will be brought by the Registrar of Companies when a director fails to comply with the Companies Act 2006 (as amended).

Being disqualified as a director will leave you with significant personal repercussions. You won’t be able to act as a director for any new companies, or continue to direct any that you’re currently involved in. Similarly, the Disqualification Order will be listed publicly at Companies House, thus damaging your personal reputation and even your credit rating.

Furthermore, disqualification from your position as a director could leave you liable for a Compensation Order – with all losses suffered becoming your responsibility to reimburse.

In order to avoid significant personal and financial cost, it’s vital to seek legal guidance throughout any disqualification proceedings brought against you – especially if you believe you are not at fault.

Company Claims

If a company can show that they have suffered a loss due to director behaviour, they can raise a claim against that director’s personal profit. In addition, the company may seek:

An injunction to stop the director from continuing their duties, and therefore the breach
Damages by way of compensation
Restoration of the company’s property
The rescinding of a contract in which the director had undisclosed interest.
Claims are often retrospective and brought against predecessors of the company’s current board. Similarly, when a company is sold, new directors may look for opportunities to bring the old directorship to account.

In these scenarios, it’s vital to seek legal assistance and ensure that the company is able to claim for all losses that are suffered as a result of errant directors.

Claims By Shareholders Against Directors

Shareholders are also able to bring a claim against a director through the courts – it doesn’t always fall to the board to resolve.

Although initiated by the shareholders, this claim will be in the name of the company, and endeavour to recover any loss suffered therein. Even if your company has limited liability status, it’s still possible for personal claims to be made against directors following insolvency, or their responsibilities being breached.

Speaking to a legal expert is essential to ensure that the company recovers what is due

Disputes Between Shareholders

Company shareholders themselves can sometimes find themselves at loggerheads. Differing expectations over dividends, return on investment and day-to-day obligations can rapidly turn into a full dispute; and it’s important to tread carefully to manage expectations on either side of the conflict.

If no Shareholder Agreement has been put in place, it can be very difficult to clearly define individual rights and entitlements. It’s vital that you seek legal advice in these circumstances.

Learn more about resolving shareholder disputes here.

Sale Of A Business Or Shares

Whether you’re dealing with the sale of an entire business or individual shares, opinions may differ over the final valuation or sale price.

A minority shareholder can’t be forced to sell, thus holding up the closing deal (after all, not many buyers will want to acquire a business where shareholders are not in agreement).

To avoid this, you could attempt to sell assets of the business, as opposed to shares – but what if your buyer is only interested in purchasing the company outright? You could find yourself at a costly stalemate until the shareholder dispute is resolved.


Misfeasance Claims

If a company fails by means of insolvency, it’s an extremely stressful time. Furthermore, the actions of the company’s directors are likely to be examined with a fine-tooth comb.

Directors who fail to fulfil their fiduciary duties and take proper account of their business’ assets could find themselves at a loss to the company or its creditors. When the company goes into liquidation, a misfeasance claim could be brought if directors are seen to act in breach of the public interest, prejudice stakeholder interest or diminish company assets that may otherwise have value.

If a misfeasance claim is pursued by liquidators, the company directors can find themselves personally accountable – and even face criminal proceedings. At the very least, they’ll be fined and need to repay any misapplied assets.

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