Shareholder Dispute in Deadlock Company

Shareholder Dispute in Deadlock Company

Posted by John Spratt, on September 8, 2021. Tags: , ,

Our client and his fellow shareholder each held a 50% share of their successful company. However, their relationship had broken down entirely. Our client’s aim was to purchase the other’s shares on reasonable terms.

We advised the client on the difficulty of his position, in this deadlock company, and attempted to negotiate an agreement with the other shareholder through his solicitors. These negotiations were difficult and extended over a period of two years.

With the involvement of Anis Waiz of our Commercial Litigation team and counsel, we advised the client on his options, including an unfair prejudice petition. The client was advised on tactics including requiring a mediation on the basis of a draft petition for unfair prejudice which we provided to the other shareholder. 

The mediation was acrimonious and unsuccessful and, while negotiations continued after the mediation, an unfair prejudice petition was filed and pleadings were exchanged. The factual basis of the case was investigated, and witness proofed, to encourage negotiation between the parties. Eventually a complex settlement was negotiated which involved forming a new company, issuing shares in that to the client effecting a share swap for his shares in the trading company, and then using the holding company to buy the other’s shares on deferred terms, subject to security granted to the other shareholder over the shares in the holding company and the trading company and assets of both.

In many ways this settlement was achieved against the odds in view of the difficult legal position the client found himself in (limited rights for a shareholder in a deadlock company, and vindictive and antagonistic fellow shareholder) and our client achieved the result that he wanted and for which he expressed great appreciation..