August 2012 - How to prepare for a boardroom battle


Business Law Update
August 2012

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Is there increasing friction between you and your fellow shareholders and/or directors? Are your board meetings starting to bear a striking resemblance to Alan Sugar’s ‘Apprentice’ ones? If so, then you need to take action and start to think tactically. The first points to consider are as follows.

Know your legal powers
Are you a shareholder, director, or both? The voting powers of directors at Board Meetings are usually equal (although often a Chairman will have the casting vote). At a shareholders’ meeting, the voting powers depend on the number and type of shares you own.

Once you’ve verified this, look at the company’s Articles and any Shareholders’ Agreement. These govern the powers that you have, and how Board and Shareholders’ meetings should be run. Understanding these documents is a must to successfully navigate yourself through disputes.

Are the company’s statutory books up-to-date?
Companies should have certain book and records, such as registers of directors and shareholders, minutes of board meetings and shareholders’ resolutions. Are these up-to-date and correct? Do they even exist?

It’s surprising how many times when there’s a dispute, there can be a disagreement over whether someone is even a shareholder or director. We frequently find that a director has removed a fellow director’s registration at Companies House without their knowledge, or deny that someone was ever given shares in the company. The place to look is in the company’s registers, as well as at what is registered at Companies House.

Make sure that important board decisions have been minuted and shareholders’ resolutions kept. Particular things to look out for are any decisions concerning payments to directors and shareholders. Have conflicts of interest, or interests in contracts, been declared and are there records of this? Have these been formally approved? If not, is this something that can be done now?

Before having that big boardroom bust-up, make sure your legal requirements have been met: it will make it far easier to challenge your opponent if you can show that you have complied with your duties whereas your opponent has not.

Put your concerns in writing?
It’s always best to make sure there is a written record of your concerns. Write to your opponent or if the issues are raised at a meeting, make sure you confirm your position in writing or ensure that it’s minuted. Don’t just make general complaints: state clearly what you are not happy about and what you want done about it.

Take legal advice
Sometimes it can be difficult to understand the effects of a company’s articles and shareholders’ agreement – they are legal documents after all and some shareholders’ agreements can be very complicated. Even more confusing can be the duties that directors need to comply with.

If you feel that a dispute is brewing, it is always advisable to take legal advice as soon as possible to put yourself in the best possible position before it escalates. Directors’ and shareholders’ disputes are usually very emotional in SMEs and family businesses, so it’s a good idea to get independent and objective legal advice about your situation and the best tactics to follow.

Gary Cousins
Business Lawyer

Twitter: @GaryCBLCousins

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The Cousins Business Law Team

Gary Cousins
Sue Mann
Nigel Musgrove
Steve Petty
Gary Cousins Dispute Resolution Solicitor

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Sue Mann Commercial Solicitor
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Nigel Musgrove Licensing & Dispute Management Solicitor
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Steve Petty Commercial Property Solicitor
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