Company and Business Related Disputes

Whether or not there is a Director’s Service Contract, which will set out the director’s duties, obligations and rights, a director should always act in the best interests of the company, must not compete with the company and must not seek to make a secret profit from the company. In addition to director’s duties which may be included in a company’s incorporation documents, there are also statutory duties set out within the Companies Act. If a director does not act within these bounds then the shareholders/company may seek to remove a director from their position and if the company has suffered loss (for example, because the director has competed and made a secret profit), the company may be able to sue the director to recover the monies.

Quite often in the case of a private limited company a director of a company may also be a shareholder, but not all shareholders will be directors. A director is responsible for the day-to-day running of the company. A director owes a company statutory duties, particularly to promote the success of the company. Since the company is owned by its shareholders, in effect the director must promote the success of the company for the benefit of its shareholders. If you believe a director is running the company in a way which unfairly prejudices your interest as a shareholder then you can apply to the Court under relevant laws for protection. The Court has various powers including requiring the company: (1) to refrain from doing or continuing an act complained of; or, (2) to do an act that you have complained it has omitted to do; or, (3) to provide for the purchase of the shares of any shareholder by another shareholder(s).

In the absence of a Partnership Agreement setting out the duties, rights and obligations of the partners, then the partnership is governed by relevant laws. These laws regulate how a partnership will be run, including the expulsion of a partner and the termination of the partnership. If there is a Partnership Agreement, this should contain provisions regulating the partnership and how matters of dispute are to be dealt with. We can advise you as to your options either under any Partnership Agreement or under the terms of the law. If the relationship has not irrevocably broken down we would invite your partner to improve his performance. However, if you feel that the relationship has broken down, or there is no improvement, we would seek to bring the partnership to an end, ideally on agreed terms in the first instance, and only resort to litigation if this was not achievable.

Unfortunately in a partnership, partners are jointly and severally liable for partnership tax so that if your partner has failed to pay tax on his share of partnership profits, you can be made to pay these taxes. However, you can then seek to bring a claim against your partner for an indemnity for the tax you have had to pay on their behalf. If there is a Partnership Agreement, such an indemnity will normally be included within that Agreement, but it might be possible to still assert that an indemnity can be claimed.

Normally, there will be provisions as to the transfer of shares in the company’s Articles. These may not be particularly wide. If there is a pre-emption clause, then the shareholder might be prevented from selling their shares to a third party without first complying with that clause.

If there is a Shareholders Agreement, it is possible that there will wider provisions as to the sale of shares which must be followed by a shareholder wishing to sell shares. If the shareholder does not follow these provisions, proceedings can be commenced to prevent the shareholder from selling these shares to a third party without first following that procedure. Further the company might be able refuse to register any third party who acquires such shares (without the other shareholder’s consent) as a shareholder.