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Resolving Shareholder Disputes

Resolving Shareholder Disputes

In the commercial environment, it is common that shareholder disputes can arise and result in large personal cost. However, these disputes can be often prevented through seeking legal advice and have properly prepared agreements at a very early stage in these matters.

People often leave these matters go too long before seeking legal advice.

Shareholder disputes occur when there are disagreements between shareholders of a company and often involve the directors of the company.

Disputes of this nature can be expensive and can involve court proceedings. If a court is involved, a personal cost can be awarded against a director for failing to comply with the requirements of the Corporations Act.

We recently acted in a shareholder dispute recently which arose when a director failed to disclose company records and another director filed an application with the court seeking an order that the company records be disclosed.

The Judge, who heard the application, was unsympathetic towards excuses that were offered for failing to disclose company records to the other director. The Judge made a costs order against the director who failed to disclose the company records, costing the director approximately $18,000.

In this case, hindsight prevailed – as the personal costs ordered against him could have been avoided if the director with the costs order against him had sought legal advice before it was too late. 

In this example, if the director had sought advice earlier, we would have advised him of the requirement to disclose company records to another director.

This example highlights the need for shareholders and directors to exercise caution before reacting when faced with a company dispute. One of the first things to look at when faced with a dispute is if there is a Shareholder Agreement and also review the Constitution.

In many cases, shareholders do not have a comprehensive Shareholder Agreement; or when one exists, the terms are so vague and do not assist the parties during a dispute.

We cannot stress enough the importance of properly prepared Agreements. A good constitution sets out the rights and obligations of the company and its officeholders, including directors.

A well-prepared Shareholders Agreement can assist the parties to avoid costly litigation, provided it is in place well in advance of any dispute.

If you have any questions regarding shareholder disputes, your company’s Shareholder Agreement or Constitution contact Hatzis Lawyers on 1300 428 947 or commercial@hatzislawyers.com.au.

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