Navigating And Resolving The Dispute Between Directors Of A Company | Semantic Taxgen Pvt Ltd


Navigating and resolving the dispute between directors of a company

June 06, 2024
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What are options to resolve dispute between directors of a company?

dispute between directors of a company

Disagreements and dispute between directors of a company are quite common. However, if these disputes aren’t resolved quickly, they can significantly harm the business. The situation becomes even more complex if the directors involved are also shareholders. These conflicts can arise for various reasons, such as differing opinions on business management, future direction, or simply a breakdown in relationships. It’s crucial to address these disputes promptly to minimize their impact on the company. This article will explore your options for resolving director disputes effectively, ensuring the business continues to run smoothly.

√Negotiate and Mediate

When a dispute arises between directors, it’s crucial to act quickly. The first step should always be to try to resolve the issue internally within the company. Common alternative dispute resolution strategies, such as negotiation and mediation, are often effective.

Start by opening up channels of communication. Recommend a meeting where everyone can discuss the issues at hand. Make sure you have a list of specific concerns and encourage all parties to express their desired outcomes. To keep the discussion structured and productive, create an agenda for the meeting and carefully document what’s discussed and any agreements reached.

If these initial discussions don’t lead to a resolution, consider bringing in a neutral third party to help. For example, when directors can’t agree on a critical company decision that’s harming the business, a mediator can assist. This independent mediator can help everyone work through their differences and find a compromise or resolution by facilitating and encouraging various solutions.

At this point, it might also be wise to seek legal advice. A dispute lawyer can help you understand your position and the potential implications of the dispute, giving you a clearer picture of your options moving forward.

√Shareholder Solutions

In many companies, directors are also shareholders. If this is the case, your shareholders’ agreement might have procedures for handling disputes between directors or shareholders. It’s important to review this agreement to see if it offers any guidance on resolving disputes, making decisions, or removing directors.

For instance, a shareholders’ agreement might include penalties for directors or shareholders who breach their duties or outline a resignation or buy-out process. Such agreements can also specify that a director can be forced out if they breach certain terms, such as:

– Investing in or advising a competitor

– Creating a rival business

– Stealing money or intellectual property from the business

These provisions create a clear framework for dealing with disputes, ensuring the company’s interests are protected and establishing consequences for actions that harm the business.

√Resign or Sell Up

When disputes become too difficult to resolve, resigning from your directorship might be an option to consider. However, whether this is feasible depends on several factors, including the financial health of the company.

If you’re also a shareholder, selling your shares along with resigning from your director position could be another avenue. The company’s constitution will outline the procedures for this. To ensure fairness and transparency, it’s a good idea to involve an independent valuer to assess the company’s value accurately.

Alternatively, depending on your circumstances, you might explore the possibility of buying out the other shareholders and remaining in the company. This approach could help resolve the dispute and allow you to continue actively participating in the company’s operations.

√Voluntary Administration

Sometimes, disputes among directors or shareholders can escalate to the point where the only viable option is to place the company into voluntary administration. Whether this is the right choice depends on factors such as:

– The financial state of the company

– The perspectives of other shareholders

Your company’s constitution should outline the procedures for voluntary administration. It’s crucial to follow these rules and adhere to legal requirements throughout the process. This ensures that everything is done in accordance with the company’s internal regulations and applicable laws.

√Go to Court

If all attempts to resolve the dispute outside of court have been unsuccessful, you might have to resort to legal action. The type of court proceedings you pursue will depend on the:

– Nature of the dispute

– Desired remedies

For instance, if another director or shareholder has breached their duties or caused harm to the company, you might file a claim against them seeking damages.

Before initiating any legal proceedings, it’s essential to seek legal advice to understand your position and explore your options thoroughly. It’s important to note that court proceedings can be time-consuming and expensive. Additionally, if you’re unsuccessful, you might be required to cover the legal costs of the other party.

Going to court should be considered as a last resort, after exhausting all other avenues to resolve the dispute. It’s a costly and lengthy process, so it’s crucial to weigh the potential outcomes and expenses carefully.

FAQs (Frequently Asked Questions).  

  1. Can a Director Leave the Company if Dispute Isn’t Resolved?

Answer: Yes, directors have the option to resign from their position within the company if disputes remain unresolved. This can be done by filing Form DIR-11 to officially step down from their directorship. Once the resignation becomes effective, the director is no longer held responsible for any activities occurring within the company. This allows directors to disengage from the dispute and move forward with their professional endeavors.

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DISCLAIMER: The information provided in this article is intended for general informational purposes only and is based on the latest guidelines and regulations. While we strive to ensure the accuracy and completeness of the information, it may not reflect the most current legal or regulatory changes. Taxpayers are advised to consult with a qualified tax professional or you may contact to our tax advisor team through call +91-9871990777 or the appropriate government authority to verify the accuracy of the information and to obtain advice on their specific tax situations.

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