Disputes Between Directors of a Company

Disputes Between Directors of a Company


AITKEN WHYTE LAWYERS BRISBANE

CIVIL AND COMMERCIAL LITIGATION AND DISPUTE RESOLUTION LAWYERS AND SOLICITORS FOR BRISBANE, THE GOLD COAST, AND THE SUNSHINE COAST, QUEENSLAND

Providing a productive work environment is a significant factor in a company’s profitability. Fostering stability can help ensure employees perform at their optimum.

One threat to such an environment is a dispute between the directors of the company. Disputes between directors can have severe negative impacts on a company. If left unresolved, disputes may tarnish a company’s business environment, reputation, revenue and ultimately its viability.

When such an issue occurs, before it becomes disruptive to the business, it is important to:

  • identify it;
  • understand it; and
  • resolve it.

Below you will find general information on:

  • the conditions of being a company director;
  • common causes of disputes within companies; and
  • options for resolving those disputes.

If you would like legal advice on your specific situation, contact us to speak to a commercial lawyer.

When To Get Legal Advice

Aitken Whyte Lawyers Brisbane have experience resolving disputes between company directors. Our team of litigation and dispute resolution lawyers:

  • are focused on results; and
  • will offer you considered commercial advice specific to your situation.

It is imperative you seek legal advice if you:

  • are starting a company;
  • suspect a dispute may soon arise; or
  • find yourself in a dispute with another director, shareholder, or officeholder.

Call us on 07 3229 4459 to speak directly with a commercial litigation lawyer.

Who Can Be a Company Director?

In Australia, companies are subject to, and governed by, the provisions of the Corporations Act 2001 (Cth) (the Act).

That Act states that to be a director, you must:

  • be at least 18 years of age;
  • consent to undertake the role and responsibilities of a director; and
  • provide your signed consent in writing before you are appointed director.

Your company must keep your written consent.

The Act stipulates further requirements for different types of companies. These apply based on whether a company is a proprietary company (privately held) or a public company.

Propriety Companies

As per the Act, proprietary companies must have at least 1 director meeting the above criteria. That director must ordinarily reside in Australia.

Public Companies

Public companies, as per the Act, must have at least 3 directors meeting the above criteria. Alternate directors are not included in this count. Further, two of the directors must ordinarily live in Australia.

Who Cannot Be a director?

The Act further states who is not eligible to be a director.

The Court or ASIC may prohibit a person from being a director if they have breached the Corporations Act. Further, a person cannot be a director or may need the Court’s permission if:

  • they are an undischarged bankrupt; or
  • they have been convicted of certain offences.

What Causes Disputes Between Directors?

While causes of disputes between individuals are many, common reasons for disputes include:

  • a breakdown in the personal relationship between the directors;
  • issues in communication between the directors;
  • a breach of duties and obligations by one or more of the directors;
  • differing views on the direction the company should take;
  • a director excluding another from business meetings or decisions; or
  • a director preventing another from accessing the books and records of the company.

Often, there may be unease due to the actions of a company member or disagreements before a dispute. If you feel a dispute may arise that will impact the business, you should seek legal advice.

Speaking to a lawyer at an early stage will put you in the best position to:

  • de-escalate a potential dispute; or
  • resolve the dispute quickly and favourably.

What Are the Avenues Available to Resolve Disputes Between Directors?

  1. Shareholder Agreement or Company Constitution

It is a good idea to prepare these documents when setting up a company’s governance structure.

A Company Constitution can include how the company should handle disputes between directors. A Shareholder Agreement may also stipulate how directors should manage the company. Where directors are also shareholders, a Shareholder Agreement can be particularly useful. Set processes and procedures for dispute resolution can:

  1. avoid uncertainty; and
  2. prevent the need for Court intervention.

These documents should clearly outline the expectations and rights of all relevant parties. Having them prepared by a business lawyer can save you time and money if a dispute later needs to be resolved.

Aitken Whyte Lawyers can draft all required documents for you if you are starting a company. Our commercial lawyers understand the realities of business and that disputes can arise. As we practice in litigation, we will ensure there is a clear dispute resolution process in place.

  1. Negotiation

Negotiation is usually the most favourable option to resolve a dispute. Negotiation can allow for better communication and see the disputing parties work together.

Further, the outcomes reached from negotiations are usually mutually beneficial or tolerable.

It can be helpful for parties to seek legal advice at this stage. This can allow them to go into negotiations with an informed view of their position and rights.

We can provide preliminary advice before you approach a co-director with concerns. You may use this advice to guide negotiations and ensure your interests are looked after.

Our lawyers are available to discuss your matter.

  1. Mediation

Where negotiations have been unsuccessful, directors may consider participating in formal mediation.

The company can engage a mediator for this process to:

  • guide the mediation; and
  • provide an unbiased standpoint.

The directors may also want to each engage their own legal representation. Each legal representative will advocate for the best outcome for their client. As such, the company may also wish to engage independent representation. The other shareholders, for example, may wish to:

  • protect their position; and
  • be represented during formal negotiations.

The benefits of undertaking mediation over commencing court proceedings include:

  • greater control of the outcome; and
  • the ability to reach a faster and more commercial resolution.

Our civil litigation lawyers can act independently for a director or the company. We can also recommend skilled mediators who we have worked with before.

  1. Resignation

The resignation of a director can be another viable solution.

Depending on their circumstances, a company director may wish to or be happy to resign. This means they will no longer:

  • have authority to consent to business decisions; or
  • be able to prevent business decisions.

One director may also believe that another director should resign. Initially, one should attempt to reach this solution by agreement. For example, where a director holds shares, an offer may be made to buy those shares on the condition they resign. Where negotiations fail, however, you would need to consider:

  • whether the company constitution provides for the forced resignation of a director; or
  • if court proceedings should be commenced.
  1. Litigation

While often a final resort, litigation is an effective method of obtaining results. The Court has the power to order a company or company director to do a range of things.

The nature of the dispute will influence what remedy you seek from the Court and the type of claim to bring. If a director has breached their duty, for example, you may wish to make a claim for damages against them.

Our litigation lawyers can assist you with the Court process from start to finish. We will provide you with comprehensive legal advice so that you are informed of your options. We are focused on results and achieving them efficiently and commercially.

  1. Voluntary Administration

It is possible for a company to enter administration or liquidation voluntarily. Where an administrator is appointed, they will take control of the company’s affairs.

Directors of a company may choose this path where the company is likely to become insolvent.

The administrator, an independent third party, will access all options to attempt to:

  • “rescue” the company; and
  • achieve a fair outcome for the company’s creditors.
  1. Voluntary Liquidation

Putting a company into liquidation will:

  • wind up the business’s operations;
  • finalise the company’s financial affairs after paying its creditors from available funds; and
  • cause the company to cease to exist.

This is another option to consider where a company is or is likely to become insolvent.

Focused On Results

Disputes between those running a company can be complicated. Nonetheless, it is important to resolve these disputes. The company’s continued profitability can depend on reaching a resolution efficiently.

We understand that as a company director:

  • you may have a large stake in the company’s success; but
  • you also need to protect your own interests.

Aitken Whyte Lawyers are focused on results. Our lawyers will make sure your rights are protected.

Contact us on 07 3229 4459 for legal advice and representation:

Office Location and Contact Details

Brisbane

Aitken Whyte Lawyers Brisbane
2/414 Upper Roma Street
Brisbane QLD 4000

Ph: 07 3229 4459
Fax: +617 3211 9311
E: enquiries@awbrisbanelawyers.com.au





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