We all know that legal disputes can be costly...this includes: 'Business Partnership Break Ups'

We all know that legal disputes can be costly…THIS INCLUDES:

‘Business Partnership Break Ups’

Here is my list of the TOP 6 issues to consider:

1. BREAK UPS

Firstly, the typical term used by many is a ‘partnership break up’ BUT these are actually more commonly:

“Shareholder Disputes” being a dispute between shareholders in a corporation.

A true “Partnership” under the Partnership Act 1958 (Vic) dispute can occur too but a different set of rules apply.

2. PARTERNSHIP ACT or CORPORATIONS ACT Either way there are mechanisms to resolve these disputes:

Firstly, the Partnership Act 1958 (Vic) does have mechanisms to dissolve a partnership and deals with rights and distribution of certain assets and profits…

Secondly, the majority of disputes are shareholder disputes in proprietary limited companies and the Corporations Act has so many applicable sections on various issues.

3. NO INSURANCE…?

Many of us purchase directors’ and officers’ liability insurance or management liability. In fact, for many years I was an expert in this field with Marsh and Aon.

NOWADAYS, I routinely deal with shareholder disputes and D&O is not far away.

Whether insurance applies will often come down to 3 key things:

(A) Wrongful act: Whether a wrongful act has occurred (say a breach of director duty); and

(B) Insured persons: Under D&O an insured person is a director or officer and even employee but whether the party sued / committed a wrongful act is an insured person is KEY; and

(C) Excluded: Exclusions apply like a major shareholder exclusion or insured vs insured.

BTW, policy holders should get their insurance reviewed by an experienced D&O lawyer NOW not when things TURN UPSIDE down!

4. Oppressive Conduct - Remedy

WOW! If you know me, oppressive conduct is something I am talking about a lot. But here I want to mention something different about oppression…

A typical remedy for resolving oppression claims is in fact a buy back of the shares of the oppressed party and by the other shareholders, directors or company. Ie. removing them from the company.

In fact, the standard orders at the Supreme Court seek an independent valuation early in the process which critically allows a calculation and resolution to occur. So even if insurance is in play the typical remedy is not insured - ie the purchase of said shares.

5. No Shareholder agreement

WOW this is a big one. Often I see shareholders without an agreement, without a method to value the company. So, things are up in the air.

Even when there is an agreement there can still be complications but this documents and key foundation documents like the constitution and replaceable rules are critical.

6. Calling Meetings and Demanding Reports

The Corporations Act has various powers to even minority members to call meetings and demand financial and other reports. This can be a thorn in the side of the majority…

This article is a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Tagged as:

• corporate law