Getting your ducks in a row: Expert advice for new business owners
Apr 12, 2023
I’ve seen so many businesses where things were rosy at the beginning but decidedly less rosy at the end.
In the excitement and positive sentiment at start up, people often see little value in instructing us to protect their interests through drafting agreements at this early stage.
When it does go wrong, it’s a reminder that the financial costs and the personal impact are far worse, and most could have been avoided.
Re The Whitehall Partnership Ltd [2023] EWHC 596 (Ch).
In this case, a couple hit the dreaded ‘shareholder deadlock’ where the voting rights in the company were equal and they had no provision to address deadlock.
One party had applied to the court claiming minority prejudice but withdrew that petition and instead petitioned to wind up the company arguing that it was just and equitable to so do. (One of the remedies available to the court in an unfair prejudice case is to order that one party buys the other party’s shares – obviously resolving any deadlock issue).
The judge wasn’t impressed by the petitioner’s evidence, suggested that the unfair prejudice petition would have been the ‘ideal forum’, he should have pursued that route first, and the petitioner had not come with ‘clean hands’. The petitioner’s motive was a key issue. The petition was dismissed.
I have seen many letters threatening petitions for unfair prejudice and often also threatening winding up. These are complex cases.
It is trite but true that each case turns on its particular facts. It’s a reminder of how unpredictable litigation can be.
This case report is a good read for a solicitor like me, but to business owners, I make these suggestions:
- Invest in good company articles and a shareholder agreement (or partnership deed if it’s a partnership) – it is proportionate and can save enormous sums of money, time, and pain if things do go wrong. Also, the process of considering the drafting with your solicitor will greatly assist your own knowledge of relevant law and advice.
- If you do find yourself ‘deadlocked’ or in dispute, consider mediating the dispute. This method is highly effective (over 80% of mediations result in an agreement). Mediation is financially proportionate and far less costly than court proceeding litigation .
Please get in touch with Walker Foster Solicitors if you would like to discuss. It’s worth the investment.
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