In today’s fast-paced business environment, it is increasingly common for organisations to establish a board of directors to facilitate effective operations. As humans, it is only natural that we will not necessarily agree at all times.
Usually, when there are disagreements in daily life, you can agree to disagree and move on from the conflict, but the same cannot be said in a business environment.
At Brown Turner Ross, we have worked with countless clients to resolve director disputes, so we are well aware of the challenges these disputes can present.
If you are currently experiencing your own director disputes and you are looking for a solution, read this article to find out more about how you should address commercial litigation in a business setting.
What Are Director Disputes?
A director dispute is a disagreement between a company’s board of directors or partners who control its management. Running a business can be an incredibly mentally taxing task and so it is only expected for disagreements to arise from time to time.
However, if these company disputes between directors escalate, they can significantly impact the business’s operation, so it is always suggested that you try to amend the issue as soon as possible.
Common Causes of Director Disputes
Some reasons why director disputes may occur include:
Strategic Direction
It is not uncommon for directors to have disputes about the company’s strategic direction. These disputes could involve a range of topics, from future business expansion to development strategies.
Financial Matters
Money is a significant part of the operations of any business. Financial disagreements are one of the leading causes of commercial litigation, and allocating finances can be a big point of contention between directors.
Directors may disagree about dividend policies or investment priorities, and if all parties are convinced that their plan works best, it can be difficult to reach a mutual agreement. In these instances, employing the help of commercial solicitors can be incredibly beneficial.
Management Performance
The success of a business depends on the work of those involved in the business. If anyone were to execute their role poorly, it could have a knock-on effect on the rest of the business, especially if this staff member is in a managerial position.
If a manager’s ability to execute strategy or achieve company goals were to be questioned, it would not be uncommon for this to lead to a director dispute.
Corporate Governance
The responsibility of a board of directors is to be able to properly allocate responsibilities and plan the board composition properly. This is a fine art and, if done right, can contribute greatly to the success of a business.
Director disputes can occur if there are concerns or disagreements concerning corporate governance practices.
Conflict of Interest
Though uncommon, director disputes can occur in situations where board members believe conflicts of interest are impacting a director’s ability to act in the company’s best interests.
What Are The Legal Implications of Director Disputes
Director disputes are never good for the morale of the organisation, as it can be difficult to move forward with a plan or strategy when directors are in conflict.
As well as it being an unfortunate situation, there are also some legal implications of director disputes that can further complicate matters, which is why we always suggest finding experienced solicitors to support you.
Director disputes can have far-reaching consequences for all those involved in the business. Here is a brief description of the legal implications of director disputes.
Breach of Fiduciary Duties:
Under the Companies Act 2006, directors are expected to follow the duty to work in the best interests of the company, and they can face legal consequences if they fail to do so.
Financial Mismanagement and Misconduct:
A director who misuses company funds can face civil and criminal penalties. If creditors or shareholders wish to seek compensation, lawsuits may occur.
Shareholder Action:
If a shareholder believes that directors have acted improperly, they hold the right to take legal action, especially if directors have harmed the shareholder’s interests in the business.
Disqualification Proceedings:
Under the Company Directors Disqualification Act 1986, any directors involved in misconduct could face disqualification for up to 15 years.
Due to the potential consequences of director disputes, it is always suggested that you seek professional legal advice in the event of a dispute.
Steps Taken to Resolve Director Disputes
Director disputes can be messy, and it is advised that the problem be resolved before it escalates further. Common steps taken by businesses to resolve director disputes include:
Negotiation
It can be easy to overlook the power of negotiation. Still, it is one of the most effective ways of resolving disputes at any stage and, at Brown Turner Ross, we will always recommend that businesses take this first approach.
It is always a good idea to have legal representation during the negotiation process; a good lawyer can advise you on how to conduct yourself during negotiations and help you work towards an agreed solution.
Mediation
Mediation is a popular method used to encourage communication between all parties involved to come to a reasonable agreement outside of the courts. You may be familiar with family mediation, where members of a family will work through a dispute with the assistance of a third-party mediator; well, mediation between directors follows the same sequence.
Through mediation, both parties are able to air their grievances to come to a settlement. This step is always recommended before any court proceedings take place to save time and money for all involved parties.
Arbitration
Though formal, arbitration is less confrontational than court proceedings. By terms of appointment, an arbitrator is given the power to make an Award to determine the dispute.
Any decision made during arbitration is legally binding for all parties involved, but in some instances, those parties have the right to appeal the decision.
Many businesses include an arbitration clause to protect themselves and all involved parties. This is a prime example of why thoroughly reading your contract and being familiar with employment law is essential.
Litigation
If all attempts to resolve the dispute fail, litigation will be pursued through the court system. This is especially true if serious misconduct allegations exist, as these instances need to be resolved with legal support.
Taking the matter to court can be time-consuming and costly, so it is always recommended that you try to resolve the dispute before taking it to the courts.
Preventing Director Disputes
As you know, director disputes can be detrimental to a business. This is why you should always take preventative measures to try to avoid disputes. Some ways that you can ensure that director disputes are avoided include:
Establishing Clear Roles and Responsibilities
The shareholders’ agreement should outline all directors’ responsibilities and rights so that nobody unknowingly steps out of line.
Promoting Transparency and Openness
By encouraging an environment in which your directors feel comfortable addressing any qualms or concerns, you can help them reach a resolution without added conflict.
Establishing Good Governance Practices
Clear policies and procedures are essential. It is also incredibly important to offer continuing training to ensure everyone knows the company’s policies and procedures.
Addressing Conflict and Interests
It is recommended that investors and shareholders regularly review their business and personal circumstances and identify potential conflicts of interest. Shareholders are expected to disclose these conflicts.
The Role of Legal Advisors in Director Disputes
Legal advisors play a pivotal role in addressing the complexities inherent in director disputes. They ensure the protection of corporate and individual interests while striving for efficient and cost-effective resolutions.
At Brown Turner Ross, we are all too familiar with the complexities associated with director disputes, and our team is well-equipped to provide assistance. From providing initial advice to court representation, we can help to protect the interests of your business.
Interested in working with our expert lawyers? Contact Brown Turner Ross today.