There are two broad ways in which such a shareholder dispute may be handled – the consensual way and the non-consensual way. In theory, shareholder disputes should be the one type of dispute that should be amenable to Mediation, as usually the parties already know each other. I am pleased to say that, in practice, mediation does work well for shareholder disputes.

We are starting to see more shareholder disputes, as the Celtic Tiger roars back to life. During the economic crash, some shareholders had nothing to fight over, whereas now some companies have become very profitable.

We regularly use our mediation/negotiation skills to settle shareholder disputes and cases of oppression of minorities. In this regard we have had extensive experience of using our mediation/negotiation skills to settle cases brought under the old provisions of Section 205 of the 1963 Companies Act, or Section 212 of the 2014 Companies Act. Apart from using our mediation skills, we are able to bring our expert knowledge of company law, accounting, insolvency, share valuations, tax, fraud investigations, pensions and re-structuring to help negotiate a solution.

The key reason why a mediated type solutions works so well in a shareholder dispute is simply that a successful mediation can be a “Win:Win” solution for both sides, whereas a Court Ordered liquidation can generate massive losses for all involved.

There are many ways of settling a shareholder dispute, ranging from one shareholder agreeing to become a “sleeping partner”, issuing a different class of share, making use of tax exemptions on termination payments, a members voluntary liquidation, bringing in new shareholders to the classic solution of the company purchasing back shares.

I recall settling one shareholder dispute where the 2 founding shareholders wished to “move on” and could not decide on the value of the software that the company had spent 4 years developing. The company’s only asset was its “source code”.We agreed to place the company into a Members Voluntary Liquidation and to sell the software by “sealed tender” whereby both shareholders made “sealed” bids which were were then opened in front of both shareholders. I then distributed the net proceeds 50:50 between them. The opening of the sealed tenders would have been a great TV moment, as both parties were anxious to buy the software.

The Revenue Commissioners allow certain share buy backs to be treated as a capital type distribution provided the transaction “benefits the trade“. Revenue, who updated their guidance on the topic last week, will normally regard a share buy-back as benefiting the trade where for example:

  • There is a disagreement between the shareholders over the management of the company and that disagreement is having or is expected to have an adverse effect on the company’s trade and where the effect of the transaction is to remove the dissenting shareholder.
  • The purpose is to ensure that an unwilling shareholder who wishes to end his/her association with the company does not sell the shares to someone who might not be acceptable to the other shareholders.

Examples of this would include:

  • An outside shareholder who has provided equity finance and wishes to withdraw that finance.
  • A controlling shareholder who is retiring as a director and wishes to make way for new management.
  • Personal representatives of a deceased shareholder where they wish to realise the value of the shares.
  • A legatee of a deceased shareholder, where she/he does not wish to hold shares in the company.

The full updated Revenue guidance may be accessed here:

https://www.revenue.ie/en/tax-professionals/tdm/income-tax-capital-gains-tax-corporation-tax/part-06/06-09-01.pdf

Shareholder disputes are very stressful for the shareholders involved. However, appointing an experienced firm of advisors who can set out a road map can help to both reduce the stress and the costs. Over the years we have developed a trusted panel of experienced solicitors and barristers who work with us on devising solutions.

If you have any clients who require advice on a shareholder dispute, please ask them to contact me, or Tom Murray or Andrew Hendrick.