Table of Contents
In Short
- Director disputes arise when company directors disagree on key business matters.
- Common causes include conflicts of interest, legal compliance issues, and disagreements over management or finances.
- Resolving disputes may involve reviewing agreements, mediation, arbitration, or in some cases, court action.
Tips for Businesses
To prevent director disputes, ensure that your shareholders’ agreement clearly outlines the roles, responsibilities, and voting rights of directors. If a dispute arises, first review your company’s agreements and consider alternative dispute resolution methods, like mediation or arbitration, before pursuing costly and time-consuming legal action.
Being a company director involves more tasks than just running your business every day. If you run a private company, you may have other directors running it alongside you. As directors, you are also the company’s supervisors. As it is common for directors to have disputes occasionally, you should be aware of key resolution strategies to ensure that you mitigate any disputes as they arise. This article explains director disputes and outlines key strategies for resolving them.
What is a Director Dispute?
A director dispute is when you and another company director disagree on something covering the company or your business. This could concern, for example:
- how you run the business;
- your future strategy;
- decisions you make; or
- management of the company.
Why Might My Company Experience a Director Dispute?
Your company may experience a director dispute for several reasons, including where:
- a director is insufficiently involved with the business;
- a director tries to exercise a greater degree of control over the business when compared to other directors;
- family members work in the business, creating conflicts of interest;
- legal compliance issues arise;
- a director’s circumstances change;
- there is a disagreement over money and dividends; or
- a director breaches their duties.
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How to Prevent a Director Dispute
The initial stage of managing disputes is preventing them from arising in the first place. You can do so by ensuring that you have a shareholder agreement that specifically details:
- voting rights;
- director’s duties
- director’s working hours; and
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Strategies for Resolving Director Disputes
If you experience a director dispute, you may need to take legal advice from a disputes solicitor. However, there are some steps you can take yourself to attempt to contain the dispute. Your first action should be reviewing your directors’ service or shareholders’ agreement. These documents should outline the:
- role of directors;
- rights and responsibilities of directors; and
- what should be done if there is a director’s breach or dispute.
However, if your business does not have a directors’ agreement or shareholders’ agreement, you should consider:
- your company’s articles of association;
- employment protection rights; and
- company law.
Your articles of association may detail a dispute resolution process. This could include directors agreeing to appoint a mediator if a dispute cannot be resolved at the board level. Here, a neutral third party will facilitate discussion between the parties in conflict.
It may be necessary to take a director’s dispute to court to resolve it. However, this should be avoided if possible, as it can be:
- expensive;
- time-consuming; and
- stressful.
What is a Director Despite Deadlock?
A deadlock could arise when you have a director dispute in your company that cannot be resolved due to an equal split between the directors’ and shareholders’ votes. As there is no majority, you cannot pass a shareholders’ resolution.
Key Takeaways
A director dispute arises when the directors of a company disagree on matters relating to the business or its operations. Such disputes can occur for various reasons, including a director’s lack of involvement or a conflict of interest. You should proactively prevent disputes by clearly outlining responsibilities and expectations in the shareholders’ agreement. If a dispute arises, you should check relevant documents, such as the directors’ service agreement or shareholders’ agreement, for guidance. Before pursuing legal action, it is advisable to consider alternative dispute resolution, such as mediation and arbitration.
If you are resolving a director dispute, our experienced disputes lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. So call us today on 0808 196 8584 or visit our membership page.
Frequently Asked Questions
Director disputes can be resolved through several methods, including mediation and arbitration. Mediation involves a neutral third party helping directors reach a resolution, while arbitration results in a binding decision made by an independent arbitrator.
A director’s dispute is when directors of a company disagree with issues concerning the company or business, such as how it is being run.
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