Understanding your options when navigating shareholder disputes – Shareholders

Is your client an aggrieved (or minority) shareholder? How you
can be heard.

Shareholder disputes are a common occurrence, arising from
various sources of conflict such as breaches of directors’
duties, oppression of a minority shareholder, financial
mismanagement, and disagreements over corporate strategy. These
disputes can pose significant challenges for shareholders. However,
aggrieved shareholders have several options available to address
their concerns and protect their interests.

Understanding shareholder disputes

At Worrells, we often see shareholder disputes resulting from
breaches of fiduciary duties, unfair prejudice, breakdowns in
relationships, or unworkable corporate structures. These disputes
can lead to tensions among shareholders, creating obstacles to
effective corporate governance and decision-making.

Options for aggrieved shareholders

1. Negotiation and mediation
   
   In many cases, disputes can be resolved through negotiation and
   mediation. Engaging in constructive dialogue with other
   shareholders can often lead to quick and cheap resolutions. This
   may include a compromise, or decision making delegated to a third
   party (where a deadlock cannot be resolved between the disputing
   parties). Shareholders may also attend mediation with the
   involvement of an experienced (sometimes, Court appointed)
   mediator.




2. Shareholder agreements
   
   Shareholder agreements can serve as valuable tools for preventing
   and resolving disputes. These agreements outline procedures for
   dispute resolution, such as arbitration or mediation clauses, and
   mechanisms for addressing issues including share transfers,
   management changes, or deadlock situations.




3. Seeking legal advice
   
   Shareholders may require legal advice from lawyers specialising in
   shareholder disputes. A legal professional can assess the
   situation, advise on rights and obligations, and recommend the most
   appropriate course of action.




4. Applying to the court
   
   When negotiation and mediation fail to result in a satisfactory
   outcome, aggrieved shareholders can resort to legal action by
   applying to the court. This may involve seeking remedies such as
   injunctions, orders for specific performance, damages for breaches
   of directors’ duties, or winding up the company on just and
   equitable grounds, which is discussed in further detail below.

Winding up on just and equitable grounds

Winding up a company on just and equitable grounds is a legal
remedy available when internal disputes or breakdowns make the
company’s continued operation untenable. Section 461(1)(k) of
the Corporations Act (2001) (Cth) (Act), can be utilised
in cases where the company can no longer properly function as a
result of a shareholder dispute.

The process of winding up a company on just and equitable
grounds involves the following steps:

1. Application to the Court
   
   A shareholder (or group of shareholders) must apply to the court
   for an order to wind up the company on just and equitable grounds.
   This application is usually made to the Supreme Court or the
   Federal Court of Australia, depending on the jurisdiction and
   circumstances of the case.




2. Evidence and Arguments
   
   The applicant(s) must provide evidence and arguments to support
   their claim that winding up the company on just and equitable
   grounds is necessary and appropriate. This may involve presenting
   documents, witness testimony, and legal arguments to substantiate
   allegations of unfair prejudice or breakdown of trust and
   confidence.




3. Court Decision
   
   The court will consider the evidence and arguments presented by
   both parties before making a decision on whether to grant the
   winding-up order. If the court is satisfied that there are
   sufficient grounds for winding up the company on just and equitable
   grounds, it will issue the relevant orders to commence the
   winding-up process.




4. Appointment of Liquidator
   
   Upon granting the winding-up order, the court will appoint a
   liquidator (such as Worrells) to oversee the winding-up process.
   The liquidator’s role is to realise the company’s assets,
   settle its liabilities, and distribute any remaining funds to
   creditors and shareholders in accordance with the Act.

At Worrells, our team of corporate insolvency and restructuring
professionals understands the intricacies of shareholder disputes
and are experienced winding up a company’s affairs to provide a
fair and efficient resolution, in the event that a shareholder
dispute cannot be resolved.

Key takeaways

Shareholder disputes in Australia present complex challenges
that require careful navigation and consideration of available
options. Whether through negotiation, legal action, or alternative
dispute resolution mechanisms, aggrieved shareholders can seek to
address their grievances and protect their interests.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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