When friends Fall Out In Business Partnerships

Business partners – friends or foes?

We all know that divorcing a spouse is a relatively common and distressing experience.

But what if you fall out with your business partner? What if COVID-19 has placed so much pressure on you and your business, it seems that everything is starting to crumble?

Business ventures are often started by friends. At the beginning, when the parties are excited about shared goals in the business venture, it is difficult to imagine things turning sour later. Finances are often limited and consulting lawyers to prepare a shareholder agreement governing the parties’ relationships often falls down the list of priorities and is not done.

Just like with a marriage, over time, the business venture partners and their relationships can change.

Partners’ priorities or needs may change as they grow older or external pressures such as COVID-19 can lead to disagreements about how the business is run.

Disputes can arise about issues such as:

• access to financial records;
• how the business finances are used;
• injecting more money into the business;
• allocation of partners’ time to the business interests; or
• misusing company money and so on.

If there is a written shareholder agreement in place with good and clear mechanisms for voting rights and dispute resolution where there is ‘deadlock’ between the partners, then some of the heartache associated with shareholder disputes may be minimised.

Often however, there are no such agreements in place and friends find themselves facing each other as enemies. Talking it through no longer seems like an option and your business partner is acting completely unreasonably. He or she is refusing to buy your shares in the business and you have put in the hard yards and your savings to grow the business over its lifetime.

Business Partnership Dispute Resolution Options

In a dispute it can be difficult for you to compel your business partner to do what you are seeking on your own. There are options for you to you to seek legal advice and perhaps redress from the Court.

There are several ways to resolve business partnership disputes and a litigation lawyer will assess your situation and options. The speed and type of resolution you require as well as commercial considerations will determine what is the best option for you.

You can seek relief where there has been:

• oppressive conduct. This occurs when the conduct of the company’s affairs or some act or omission by or on behalf of a company is contrary to the interests of shareholders as a whole or oppressive, unfairly prejudicial or unfairly discriminatory against some of the shareholders;
• breaches of directors’ duties. These breaches include failure to exercise directors’ powers and discharge duties with the necessary degree of care and diligence or in due faith and in the best interests of the company and for proper purpose, a director improperly using their position or using information gained as a director or employee to gain an advantage for themselves or cause detriment to the company;
• derivative actions whereby shareholders bring an action on behalf of the company against shareholder or director who causing harm or loss to the company; and
• breach of contract, such as the Company Constitution or shareholders’ agreement.

Possible Court Orders

The court is able to issue orders where the parties must comply. The remedies Courts may order in those circumstances include:

• winding up the company or appointing an administrator;
• modifying the company constitution;
• regulating the company’s future conduct;
• purchase of the company shares by other shareholders;
• restraining a person from engaging in some conduct or act; and
• requiring a person to do a specified act.

Get legal advice early

Often more than one of the above strategies can be utilised to get the outcome you desire.

Some matters may settle quickly whilst others may need multiple dispute resolution strategies working simultaneously to get a result.

Mediation is a key process to resolving disputes and is mostly compulsory in Court proceedings. The parties meet, in a setting less formal than court, and discuss their positions to try and settle amicably.

Before the commercial relationship breaks down between the other shareholders or directors contact PCL Lawyers for advice.

The earlier you get advice the better the decision making process will ultimately be. We will work with you to determine what is achievable and the best strategy for your circumstances.

Obtaining legal advice to determine the nature of the dispute and how the law applies to the dispute is where shareholder litigation lawyer will assist.

The law is complex in this area and getting clarity on your circumstances and being properly advised will ensure the dispute is handled swiftly and with potentially less fallout.

Litigation is certainly not always necessary. Matters can resolve amicably with sound legal advice and with litigation lawyers who are able to negotiate effectively.

Call us on 1300 907 335 to see how a business partnership lawyer can help you resolve your dispute. Alternatively complete an online enquiry form and we will respond promptly.