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How to Deal with Director Disputes in Your Company

How to Deal with Director Disputes in Your Company

Director disputes are highly common. They can significantly impact the workplace and a company's performance. Here are some ways to deal with them.

17th September 2019

Director disputes can arise for a number of reasons. From the direction a company takes to personal relationship conflicts. However, there are four effective ways to deal with these disputes to minimise the negative implications.

Preexisting directors agreement

Arguably the most effective preemptive solution to director disputes is to create a shareholder agreement. This document is vital because most directors are shareholders of the company they direct. A Shareholders Agreement will help you govern the relationship between shareholders of your company. A Shareholders Agreement helps protect your interests in these situations. If disagreements arise, it can be very helpful to have a clear idea of what the parties agreed to before the dispute. This agreement can set out penalties for director breaches and even have stipulations that require directors to engage in mediation if a dispute arises.

Director Negotiation

Both sides coming together to discuss the issue may sound like a simplistic issue. It can actually be an effective method of finding a mutually beneficial outcome for all parties. Specifically, both parties should meet and explain their position. If necessary, a mediator can also be appointed to facilitate the negotiation. This method is also inexpensive and does not have substantive negative implications for the rest of the company if the issue is resolved.

Voluntary administration

Voluntary administration involves an independent and suitably qualified person (the voluntary administrator) taking full control of the company. The voluntary administrator will try to resolve the company’s future direction quickly. This can involve working out a way to save the company or ensure returns for creditors. This solution is more appropriate for larger companies. However, can be an effective solution for any company whose directors believe the company is insolvent or likely to become insolvent.

Court involvement

Director and shareholder disputes often end up in court. This is because it can be an effective last resort measure. This is particularly true if a director has breached laws, such as used company funds for improper purposes. Courts can take a number of actions to remedy such a breach. This can range from removing a director, financial penalties and potentially even winding up a company. At face value the judicial system appears to be the most effective response to a director dispute. However, this method causes great financial and time expense for all parties involved. Courts can further make running the business more challenging. A decision is unlikely to satisfy all parties involved and subsequent conflicts may arise if the directors continue to run the business.

Conclusion for resolving director disputes

Ultimately, the first step should always be to create a shareholders agreement to ensure director’s responsibilities are clear. The agreement can also stipulate measures to take if a dispute arises. Subsequent measures should be taken as above with court involvement being treated only as a last resort. It is advisable to contact an employment lawyer to discuss any matter and ensure you are aware of your rights and obligations as a director.

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Author
Gopi Giri

Gopi currently works in the content team as a Legal Intern for Lawpath. He is in his fourth year of a Bachelor of Law and Commerce (Accounting) at Macquarie University. Gopi is interested in cyber law and future innovations in the legal industry.