February 1, 2022

Let’s Agree to Disagree – Shareholder Disputes and Solutions to Resolve

It is common for private companies to be born out of a light-bulb moment between friends or family. From the outset, it may seem all sunshine and rainbows, but the relationship can quickly turn sour under the pressures of business.

It is a forlorn and unfortunate truth that if the business relationship goes south, the personal relationship often goes with it.

Disputes between shareholders can stem from:

  • Differing expectations for the day-to-day management of a company and/or its business.
  • Following a profitable year’s trade, one shareholder expects to receive a dividend while another shareholder would prefer to reinvest the funds into the company.
  • Shareholders contribute more capital to the company compared to other members.

As insolvency practitioners, we enter the picture after the die has been cast in an effort to salvage the best possible resolution for all parties involved – namely the company, its business, the shareholders, creditors and the employees.

Disputes between shareholders can become extremely expensive affairs to resolve and, in hindsight, needn’t be necessary. Ironically enough, it would be a fair assumption that minimising or eliminating such costs would be one thing that disputing shareholders could actually agree on.

Our position affords us the ability to look at such scenarios through a retrospective lens and identify what resolutions shareholders could have resorted to before a dispute reached the tipping point.


Shareholders Agreement

Think of a shareholders agreement as a prenup for those daring to commit to a ‘business marriage’. A shareholders agreement can outline the procedure for resolving an impasse, such as attending a mediation, a dispute resolution procedure or a process for shareholders to purchase the other’s shares.

The agreement governs the relationship between a company’s shareholders and can clarify:

  • How responsibilities will be divided between the shareholders and the company’s director.
  • How shareholders may acquire or dispose of their shares.
  • What mix of funding the company will utilise (i.e. debt vs. equity).
  • Arguably most importantly, how shareholders can exit the company.

Furthermore, a company constitution delineates how a company can operate, and should include clear procedure when decision making between shareholders reaches an impasse.

In resolving a dispute, the cost to have a lawyer carefully prepare a shareholders agreement is a modest price to pay in comparison to taking legal action.



Mediation is a cost-effective means for all parties to voice their opinions and attempt to reach a mutually beneficial outcome.

A neutral and impartial party can be appointed to oversee the mediation and facilitate a civilised, diplomatic discussion. Alternatives to resolve the impasse can be agreed upon by the mediation, such as selling the company’s business to a third party or selling the aggrieved shareholders shares to another party.

Mediation can be a fast, cost-effective means to resolve grievances internally, before the matter is taken out of their hands by the Court.


Court Intervention

The final option to resolve disputes between shareholders is to seek Court intervention. Understandably, Court action is hugely time-consuming and comes at a significant cost.

The Court has powers to make Orders such as:

  • If there is a perceived risk of certain assets being dealt with before Orders can be made, a provisional liquidator can be appointed to maintain the status quo for an interim period.
    • Order a shareholder to buy-out another shareholder at a price determined by the Court.
    • Order a company buy-back of a shareholder’s shares at a price determined by the Court.
    • Appoint a receiver and manager to deal with company property.
    • Wind up the Company.

Avenues an aggrieved shareholder can rely upon when pursuing Court action include:

  1. Breach of Director’s Duty

The Corporations Act sets out the duties and obligations imposed upon a director/s of a company. When these provisions are breached, resulting in oppressive/unfair conduct against a shareholder, the shareholder may have grounds to apply to Court for orders to be made.

2. Oppressive Conduct

Again, the Corporations Act contains provisions that give the Court the power to take action if oppressive conduct has caused detriment to a shareholder. Examples of such oppressive conduct include the inability for shareholders to access key information regarding a company’s affairs, company funds being used for improper purposes or the payment of excessive remuneration to a director/s.

3. Winding Up the Company

Commonly the last resort, a Court must be satisfied that the winding up of a company is “just and equitable” in the circumstances. This concept in itself is complex and is applied on a case-by-case basis. In short, a winding-up based on “just and equitable” grounds may occur if a disagreement between disputing parties cannot be resolved, therefore winding up the company is the only logical solution.

It is no surprise that the Court is reluctant to opt for winding up action, especially if a company is solvent or if there are employees who will likely be impacted.

SV Partners are experienced insolvency and turnaround professionals and are available for an obligation free consultation on 1800 246 801. Otherwise, please contact your local SV Partners office for further details.


Article written by Richard Smee (Senior Accountant) – SV Partners Sunshine Coast

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