If you become involved in a dispute among shareholders, there are numerous options to pursue a satisfactory resolution. To some degree, which options are available will depend upon the Articles and By-Laws of your company, and whether there is a Shareholders’ Agreement governing the relationship among shareholders.
Most Shareholders’ Agreements will include a mechanism for the purchase of a member’s shares, and this can often provide a fair and final resolution. The Agreement may also stipulate a specific process for resolving internal disputes, which might include mandatory mediation or arbitration.
Mediation is most effective where the shareholders expect to continue in business together, since it allows the parties to engage in a frank discussion of the issues, and fosters the creation of a solution that fits their unique circumstances. No decision is “imposed” on the parties, and this typically yields a more sustainable outcome. The involvement of a neutral third party to assist in discussions can be surprisingly helpful in allowing the shareholders to focus on their interests, rather than their grievances.
Arbitration – a quasi-judicial process – is becoming more common in shareholder disputes, and has a number of benefits over traditional court processes:
- Subject matter expertise of the arbitrator,
- Fewer interlocutory applications,
- Flexible scheduling,
- Streamlined disclosure requirements, and
- Abbreviated time to resolution.
However, it does have some negative aspects that must be considered:
- Unlike a judge, the arbitrator must be paid, and
- There is a very limited right of appeal.
Where there is no agreement to mediate or arbitrate, and direct negotiations have failed, the parties are left with the option of pursuing a resolution in court. In BC, the Supreme Court Civil Rules and the Business Corporations Act allow most shareholder disputes to be addressed in a summary proceeding – this means the evidence is presented in affidavits, and pre-hearing discovery occurs only as permitted by the court. The courts have recognized that summary proceedings may need to be supplemented by additional steps (e.g., disclosure of documents, cross examinations), and in complex cases it may be necessary to resolve matters through a full trial.
I have used all of these processes to resolve shareholder disputes and internal governance issues and find mediation to bring the most consistently satisfactory results. Litigation remains a necessary tool, but the imposed solution is frequently a blunt instrument that does not account for the nuances affecting the company.
If you are involved in a corporate dispute, contact me for a complimentary review of the circumstances and an assessment of the available options.
This article is intended to provide general guidance on the subject matter. Specific advice should be obtained in connection with your particular circumstances.
