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Resolving The Deadlock

Reasons to choose Wilson Browne

Recently we have experienced a number of clients coming to us with problems in their company due to 50:50 shareholdings where the business owners cannot agree on the difficult decisions required to carry on business.

Often these companies do not have a Shareholders’ Agreement or Articles of Association (or Family Constitution for family businesses) that would help settle this sort of dispute. When finding solutions often the undesirable outcome is either a sale of the business or winding up the business. In these situations the only winners tend to be the lawyers!

To avoid this situation a Shareholders’ Agreement or Family Constitution should provide for how difficult decisions are made and just as importantly what happens if a decision cannot be made. If a deadlock occurs a Shareholders’ Agreement would usually provide for methods of resolution, whether this is referring the matter to mediation or one side making an offer for the other side’s shares.

As an example a client who was a shareholder in a software business had a deadlock at both board and shareholder level. The two sides couldn’t agree on the future direction of the Company, so could not continue together. This resulted in over 18 months of negotiation and eventually a sale of the client’s shares. Had there been an effective Shareholders’ Agreement in place the sale process could have been more streamlined or the deadlock avoided entirely.

As a general rule the earlier a Shareholders’ Agreement is put in place the better as it is virtually impossible to get someone to agree terms once people start to fall out.

The Company Commercial team at Wilson Browne can advise and guide you through the process of putting in place a Shareholders’ Agreement or Family Constitution.

James Dent

Posted:

James Dent

Associate

James is a Solicitor in our Legal 500 recognised Company & Commercial team. He advises businesses and individuals on all aspects of corporate matters including the sale and purchase of businesses (shares and assets), management buy-outs and buy-ins, reorganisations, restructuring, private equity, joint ventures and…