Shareholder & partnership disputes that lead to insolvency appointments

Disputes can bring down the ‘hatchet’ on a business.

If a dispute in a business goes on long enough, it can often mean the beginning of the end for a business, even for a profitable business.

The problem for most unlisted companies or partnerships is there is no regulated open market for the sale of an individual’s interest in those entities. Hence if someone wants to leave or sell their interest, often they’re at the mercy of the other shareholders or partners.

With a properly drawn shareholders/partnership agreement the issue of leaving can be sufficiently dealt with. That type of agreement should be entered into at the venture’s start but usually aren’t due to everyone being friendly and believing nothing can go wrong—and frankly the venture’s capital funds could be used for things other than solicitors’ fees to draw up the agreement. So, the notion of an agreement is happily forgotten about until a dispute arises between the owners and, by then, it’s too late.

The fact is, not all companies that go into liquidation are insolvent. In several cases, they are solvent, and liquidation occurs because of a major dispute between the shareholders.

This liquidation process is covered under section 461 of the Corporations Act 2001 and the appointment of a liquidator is on “just and equitable” grounds.

For a partnership, if dispute between the partners cannot be settled, while a liquidator can’t be appointed, it is possible to seek the appointment of a Receiver or a Receiver and Manager to settle the dispute.

Appointing a Receiver is made pursuant to the “inherent powers” that the Supreme Court, Federal Court, and Family Court have. These appointments are made on a “just and convenient” basis.

Whether it is the appointment of a liquidator to a company or a Receiver to a partnership the emotional arguments between the parties will be taken out of the equation; and instead, a qualified, independent, and commercial person, like a Worrells principal, is appointed to bring about a successful resolution to the dispute that led to the appointment.

And when I say successful resolution, I mean that within the definition of a successful mediation: where the parties to the dispute are unhappy with the result/outcome and may feel that they have lost out, however they can live with the outcome usually because it is not worth the extra risk and cost to continue with any fight.

Related articles: 

Court-appointed receivers & statutory trustees: the reasons to appoint 

Using mediation to resolve shareholder disputes