Shareholders dispute case study

Shareholders dispute – Context and Challenge

Our client, a shareholder, had invested money she had raised from friends and family into a business. Not long after the business was up and running our client fell out with the other shareholder. We reviewed the correspondence and saw that our client had been totally taken advantage of by the other shareholder.

No shareholders agreement was in place between our client and the other shareholder. As our client was a minority shareholder this was a major issue – the other shareholder controlled the company. The other major challenge was that our client was not on the bank mandate. Not only did she not have control over the company, she had no access to the company’s bank account.

Process and Insight

We interviewed our client to understand exactly what had gone on. We also reviewed email correspondence between our client and the other shareholder.

From listening to our client and reviewing the correspondence we identified areas where the other shareholder had breached her contract with our client (although there was no formal shareholders agreement in place there were still binding commitments that the other shareholder had taken on). We also considered how provisions under the Companies Act protected our client from “unfair prejudice” as well as how the other shareholder, who was also a director of the company, had potentially breached her duties under the Act.

We then came up with a strategy to help our client who basically just wanted to leave the business with the money that she had put in.

Solution

We corresponded with the other shareholder pointing out her breach of contract, non-compliance with the Companies Act, the rights and remedies available to our client and the enforcement action that we would take if the situation was not put right.

As part of the strategy our client engaged with a third party to bring added pressure to bear on the other shareholder.

Results

The end result was that our client left the business under the terms of a settlement agreement with the company paying her back all of the investment that she made in the business.