How to resolve shareholder disputes independently through liquidation
Relationships are a big part of running a company. But as much as we’d like them to last forever, sometimes those company relationships can turn sour.
It could be the result of a personal or family breakdown, a difference in opinion or belief, or simply not being able to see eye to eye on a particular matter. But whatever the cause, it can create a situation where shareholders can’t resolve their differences and agree on a course of action for the company.
It can be particularly problematic when the company structure has been set up with 50/50 ownership and control. In most situations it works well, but in the case of a dispute it creates a deadlock, putting the company in a stalemate position.
To resolve these disputes, a lot of time, money, resources and emotional energy are poured into a battle where the winners are usually the lawyers and insolvency practitioners instead of the shareholders. If you can, our recommendation is focus on the commercial disagreements and settle. Keep the emotions out of it!
Fortunately, if a settlement can’t be reached here is another way to go about it.
Liquidation—the independent arbiter
Another way to resolve shareholder disputes is to place the company into liquidation. This puts the company’ affairs in the hands of an independent third party (the liquidator), whose role is to:
- realise the company’s assets
- maximise the return on those assets to repay the company’s creditors
- pay any surplus funds to creditors.
Most people think liquidation is used only to finalise the affairs of companies that are insolvent (i.e. can’t pay their debts as they fall due). But solvent companies also use liquidation when shareholders can’t agree how their interests in the company should be finalised.
How a liquidator can help
As part of their role, the liquidator can enact various strategies to give all parties a fair and equitable outcome. Of course, those strategies will depend on the company’s circumstances, its solvency, and the competing interests of the shareholders.
For example, the liquidator may try to sell the company, either privately or on the open market. Shareholders can take part in the sale process, and even submit an offer if they’re interested. The proceeds of the sale can then be used to repay the creditors, with any surplus funds being distributed to the shareholders.
Or the liquidator may decide to conduct a structured wind down of the company’s operations instead, realise its assets to repay creditors, and distribute any surplus funds to the shareholders.
Getting the shareholders to agree on appointing a liquidator may be difficult. But in the end it will give them peace of mind knowing their interests are being dealt with independently by a professional, and that the arguments about what’s best for the company will soon be over.
How we can help
The Partners here at Rapsey Griffiths are registered liquidators, and have handled liquidations of all shapes, sizes and complexities. Using their vast experience, they can deal with competing and disputing interests effectively, ethically and empathetically.
If you or a client needs help resolving a shareholder dispute, get in touch with us today and find out how we can help you.