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30 Sep 2019

Using mediation to resolve shareholder disputes

READ TIME

3 min

A liquidator mediates to avoid liquidation.


A recent appointment took me to uncharted territory and gave me a new appreciation for the importance of being an independent party. While the appointment held a fairly standard remit “investigate a company’s debts”, the outcome of my work was not. Unknown to me at the time of being appointed independent accountant, it morphed into becoming an informal mediator between the disputing parties to try to resolve the position without expensive legal proceedings and the possible liquidator appointment on just and equitable grounds.

To set the scene, let me go back to the beginning. Two company shareholders were in dispute over the ‘correct’ creditor position, particularly in respect of its related entities. One shareholder was concerned that company funds would be paid to related parties that did not have a true entitlement to the funds. That shareholder applied court to have the company assets placed under a freezing order and for the appointment of an independent accountant to review the dealings between the related-party creditors and determine the company’s true liability position.mediate

I was appointed as the independent accountant. Over the following weeks I investigated and prepared a detailed report outlining my findings. The report provided conclusions on some investigations but also identified matters that would require more detailed investigations based upon third-party records, which would take considerable time. The results of those investigations then complicated matters further with both parties happy with some of my findings, but unhappy with other parts, which is not uncommon in situations like these.

The applicant shareholder was very concerned about the findings and therefore wanted to proceed with appointing a liquidator to further investigate the position.

While normally a logical step in such a scenario, it was clear that a large portion of company funds would quickly erode through the application costs, along with likely liquidator costs plus further legal costs, leaving shareholders with very little at the end. As such, I suggested that shareholder parties try an informal mediation first in the hope that the matter could be resolved. I confirmed that would be prepared to act as mediator given I had intimate knowledge of the disputed claims. The parties agreed and an informal mediation was held.

The process took some hours and during this period we went through the typical ups and downs of a mediation. There was denial, anger, aggression and ultimately reluctant acceptance. Thankfully given my understanding of the company’s financial position and my independent standing, I could be quite frank with each party in my assessment of each of their claims. Calling upon my years of experience of just how costly a disputed liquidation can be, provided some compelling context to motivate settling the matter at mediation.

Being a liquidator, I have attended many mediations throughout my career, but taking on the mediator role was a new experience for me. The mediation was one of the more challenging that I have been involved with, but ultimately it was successful with a result being achieved that was acceptable to both parties. I was very pleased to help get them this outcome given the alternative would be a long and costly process.

Worrells can provide a range of solutions relating to dispute resolution, independent party reviews, and statutory appointments over property. As a firm of insolvency practitioners in both personal and corporate insolvency matters, we are well-versed in these matters. Our experience can add value and give your clients proper and qualified advice to assist them make the best decision for their circumstances.

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