Shareholder Disputes

Friel Stafford > Blog > Business > Shareholder Disputes

Shareholder Disputes

  • Posted by: Jim Stafford
  • Category: Business

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. We are pleased to say that, in practice, mediation does work well for shareholder disputes.

Mediation

The key reason why a mediated type solution 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. We regularly use our mediation/negotiation skills to settle shareholder disputes. We have two experienced mediators, Tom Murray and Jim Stafford. 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 for a range of situations including: 

  • Disagreement over the management or future direction of the company;
  • Company acquisitions, mergers and disposals;
  • Conflict of Interests;
  • Compensation issues including remuneration and dividends;
  • Fraudulent activities by shareholders or overall misconduct within the company;
  • Oppression of minorities.

Position of shareholders who are employees

The position in respect of executive directors who are shareholders gives rise to the consideration of that person with separate and distinct entitlements as:

  • A Shareholder
  • A director
  • An employee

Over the years, the rights of employees have become much stronger. One area where they have obtained increased protection is in the areas of “whistleblowing”. The recently Protected Disclosures (Amendment) Bill 2022 will broaden the scope of the Protected Disclosures Act 2014 when passed into law and will enhance the protections for whistle-blowers in Ireland.  It is not uncommon to have whistleblowing issues in shareholder/boardroom disputes. Whistleblowing issues need to be handled delicately.

Section 212

Section 212 of the Companies Act 2014 (“the 2014 Act”) is the main provision which deals with the protection for minorities in the case of oppression. Section 212 allows minorities apply to the court for an order should they believe that that the affairs of the company are being conducted in an oppressive manner.

One of the key determinants in advising clients is establishing (depending on what side of the fence you are advising!) if there is a quasi-partnership. A quasi-partnership argument can be very effective in dealing with a majority shareholder.

One option available under Section 212 of the 2014 Companies Act is to seek compensation from the company. (The previous section, Section 205 of the 1963 Companies Act did not allow compensation.)

We are experts in the area of resolving shareholder disputes. We were involved in one of the first Section 212 cases soon after the 2014 Act was passed.  Over the years we have developed a trusted panel of experienced solicitors and barristers who work with us on devising solutions. We monitor and carefully review new High Court judgments on section 212, including judgements such as Harrington -v- Harrington

Statutory Declaration that a director has ceased to act as a Director

In some cases, particularly in two director 50:50 cases, it is obvious that the company is insolvent and has no viable future, but the other director refuses to cease trading and will not allow the other director to submit a Form B10 to resign. In such cases we advise directors to file a form B69 https://www.cro.ie/Portals/0/Companies%20Act%202014%20New%20Forms/B69%20form%20fillable.pdf . The advantage of filing a Form B69 is that provided the company is not placed into liquidation for 12 months then the resigning director may not be restricted or disqualified.

Share Buy Back

The Revenue Commissioners allow certain share buy backs to be treated as a capital type distribution provided the transaction “benefits the trade”. Revenue 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 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 can be 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. In particular, we can advise on specific tactics and strategies that should be adopted.

Examinership/SCARP/Members Voluntary Liquidation

In some case, formal insolvency solutions such as Examinership, SCARP or a Members Voluntary Liquidation might be the best option to resolve a shareholder dispute. For further details about these processes please click on links below.

https://www.frielstafford.ie/examinerships/

SCARP

For further advice on shareholder disputes, please contact Jim Stafford, Tom Murray or Andrew Hendrick.

Updated 2 March 2022

Author: Jim Stafford