Shareholder dispute resolution and mediation are methods of resolving conflicts or disagreements between or among the owners of a company. Shareholder disputes can arise for various reasons, such as differences in opinions, interests, values, or actions of the shareholders.
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Shareholders Dispute: Overview & Common Causes.
Overview.
Shareholder disputes are a frequent problem, especially for small businesses that are owned and managed by the same people. Shareholder disputes can involve disagreements among shareholders or between shareholders and the company’s owners. The disputes can vary depending on the issues, such as the management style, the decision-making process, or the occurrence of fraud or illegal conduct.
Shareholder disputes can negatively affect the company’s performance, therefore, it is important to find a suitable way to resolve disputes and prevent them from escalating. One way to do this is to have a well-written shareholder agreement that specifies the circumstances and mechanisms for resolving disputes. Another way is to use mediation, which is an effective method to facilitate a settlement between the parties.
Common Causes.
When shareholders have different opinions or interests on how the company should operate, invest, grow, or restructure. For example, some shareholders may want to expand into a new market, while others may prefer to focus on the existing one.
This occurs when shareholders breach the terms or conditions of the shareholder agreements that govern their rights and obligations. For example, some shareholders may sell their shares without the consent of other shareholders, or terminate the agreement without a valid reason.
When shareholders act dishonestly or irresponsibly with the company’s funds or assets. For example, some shareholders may misuse or misappropriate the company’s money for their personal benefit, or commit fraud or illegal acts.
This occurs when shareholders are paid or treated unfairly based on their roles, responsibilities, or contributions to the company. For example, some shareholders may receive higher salaries or dividends than other shareholders who have similar qualifications or workloads, or some shareholders may not contribute enough to the company’s operations or finances.
In this event majority shareholders abuse their power or influence to disadvantage minority shareholders. For example, majority shareholders may exclude minority shareholders from decision-making or information-sharing, or make decisions that benefit themselves at the expense of minority shareholders.
For example when in the case of Ang Thiam Swee v Low Hian Chor SGCA 11.
A director was accused of mishandling corporate funds while the remaining directors, Mr. Ang and Mr. Low, were absent from the EGM, preventing Mr. Gan from having the required quorum, and he was successfully sued for bankruptcy as a result. After which Mr. Low made an attempt to depose Mr. Ang by claiming that he had also misappropriated monies. Because it recognized Mr. Low’s motivations, the court dismissed his lawsuit. Costs and the customary consequential orders were given to Mr. Ang.
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Shareholders Resolution: Mediation.
Mediation is a method of resolving disputes between shareholders without going to court. It involves a neutral third-party mediator who helps the parties communicate and negotiate with each other to find a mutually acceptable solution.
Mediation offers various benefits for shareholder disputes, such as:
Mediation is carried out in a private atmosphere where the parties can discuss their difficulties without risk of exposure or adverse publicity, in contrast to court processes which are public and can harm the reputation and business interests of the firm and the shareholders. It is adaptable and specific. Unlike court orders, which a judge imposes and may not specifically address the interests and concerns of the parties.
Mediation gives the parties the opportunity to craft their own solutions that fit their requirements and preferences, as opposed to court rulings, which are handed down by a judge and may not address the parties’ particular needs and concerns. In comparison to litigation, mediation provides more options and room for creativity in dispute resolution.
Mediation provides a collaborative and productive environment where the parties can engage politely and honestly with one another, in contrast to litigation, which can be combative and hostile. The relationship between the shareholders and the business can also be preserved or restored with the use of mediation, fostering peace and future cooperation.
Mediation is based on the parties’ willingness and permission to cooperate and settle, as opposed to litigation, when parties are required to comply with the court’s orders. The decision as to whether to proceed with mediation, who to select as the mediator, how to conduct the mediation, and whether or not to accept the result is up to the parties. This increases the parties’ autonomy and authority over the decision-making process.
Mediation is focused on mutual respect and understanding, as opposed to litigation, where parties are frequently adversarial and confrontational against one another. Parties are urged to articulate their own wants and interests while also acknowledging and listening to one another’s points of view and emotional states. This encourages communication and empathy between the parties and enables them to focus on the root issues of the conflict rather than its outward manifestations.
Mediation can be used as a preventative and proactive strategy to address conflicts before they become unmanageable, in contrast to litigation, where parties frequently turn to legal action after the issue has gotten out of hand and harmed the relationship. Even before the issue enters the judicial system, the parties may request mediation at any time. Parties may benefit from this in order to stop additional damage and maintain the company’s value.
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