Director & Shareholder Dispute

What Are Director and Shareholder Disputes?

Why These Disputes Matter

A shareholder dispute occurs when one or more shareholders (owners) disagree among themselves about how the company should be run, how profits should be shared, or how to value and sell shares.

A director dispute involves disagreement or conflict in a company’s board — for example, a director being accused of breaching fiduciary or statutory duties, or being excluded from decision-making.

These internal conflicts are not simply “business disagreements.” They can impose heavy financial, reputational and operational costs: stalled decisions, loss of confidence, damaged relationships, or even forced sale or winding up of the company.

In smaller businesses — particularly family-run or owner-managed companies — roles often overlap so the fallout is more personal, and the risks greater. We know how challenging this can be, and we tackle disputes with tact, clarity and strength.

Who Can Be Involved

• Majority shareholders and minority shareholders
  
• Executive directors, non-executive directors, or shadow directors
  
• Shareholders who are also directors (dual roles)
  
• The company itself (on behalf of all shareholders)
  
• Investors, joint venture partners, or external funding parties
  

At Jonathan Lea Network we act for all sides — whether defending, prosecuting, mediating, or structuring exits.

Types and Common Causes of Disputes

Understanding how these disputes emerge helps you detect them early and address them before they escalate.

1. Mismanagement and Breach of Duties

Often a dispute begins when a shareholder suspects a director of acting improperly — for example, diverting business opportunities, failing to keep proper books, entering related-party transactions without disclosure, or ignoring their fiduciary duties (such as duty to act in the company’s best interest, avoid conflicts, and exercise care and skill).

By statute and case law (e.g. Companies Act 2006), directors have obligations that, if breached, give rise to claims. At Jonathan Lea Network, we routinely assist clients in identifying and defending or pursuing such claims.

2. Financial Conflicts & Dividend Disputes

Shareholders may clash over profit distribution, dividend policies, and unequal contributions (capital, sweat equity or management effort). A shareholder may feel excluded from financial transparency — e.g. not given access to accounts or being denied fair returns.

These financial tensions are among the most frequent causes of internal business strife.

3. Strategic Vision, Control and Exit Strategy

Disagreements about the future direction of the business — e.g. growth vs stability, sale vs reinvestment, merger offers — often spark serious conflicts. Shareholders may want to sell, others want to hold. In the absence of clear exit mechanisms or buy-out clauses, tension arises.

4. Deadlock Situations

Where votes are evenly split (for example 50/50), or where key decisions require unanimity, a deadlock can paralyse the company. The inability to make decisions can push the business into crisis.

Jonathan Lea recently published practical strategies on how to resolve deadlock situations, combining legal tools, negotiation and structural change.

5. Undervalued or Forced Sale of Shares

A majority shareholder may attempt to squeeze out minority owners by undervaluing shares, offering unfair terms, or forcing transfers. Such aggressive actions often provoke claims of unfair prejudice (see below).

6. Unfair Prejudice & Exclusion

A minority shareholder may allege that the actions of the majority are “unfairly prejudicial” to their interests — for example being excluded from participating in management, being denied access to information, or being sidelined.

Courts have wide remedial powers in unfair prejudice petitions (e.g. ordering a buy-out).

7. Breach of Shareholder Agreements & Articles of Association

Often disputes arise because one party ignores or improperly interprets the shareholder agreement or articles. Clauses on decision thresholds, drag-along or tag-along rights, share transfer restrictions, dilution protections, and exit rights are common flashpoints.

Legal Framework and Protections

To advise clients well, we draw on multiple legal foundations:

Key Statutes and Legal Doctrines

• Companies Act 2006: lays down directors’ statutory duties (sections 171–177), rules on derivative claims (section 263), and unfair prejudice petitions (section 994)
  
• Common Law / Fiduciary Principles: duties of loyalty, good faith, avoidance of conflicts etc.
  
• Case Law & Precedents: for example, Smith v Croft (No 2) on derivative claims and majority/ minority views. Wikipedia
• Johnson v Gore Wood: principles on “reflective loss” (when a shareholder claims damage that really belongs to the company) Wikipedia
• Foss v Harbottle Rule: the general rule that the company, not individual shareholders, should pursue claims — with recognised exceptions

Importance of Shareholder Agreements

A robust shareholder agreement and well-drafted articles of association are key tools for preventing disputes or managing them. Key provisions include:

• Decision thresholds (ordinary vs special resolution)
  
• Voting rights and protective rights
  
• Tag-along / drag-along rights
  
• Valuation mechanisms and buy-out triggers
  
• Exit rights and matching rights
  
• Dispute resolution clauses (mediation, arbitration, expert determination)
  

Where disputes do arise, we scrutinise whether parties are compliant with those agreements, and whether breach is actionable.

How Director and Shareholder Disputes Can Be Resolved

We adopt a pragmatic, stepwise approach and whilst most disputes are resolved by someone being bought out, we will always exhaust non-court routes first,and are fully prepared for litigation when needed. 

Negotiation / Settlement

Sometimes direct negotiation, properly advised, is the best route. We may help parties exchange proposals, use valuation experts, or structure phased buy-outs to bridge gaps.

Alternative Dispute Resolution (ADR)

ADR options tend to be faster, more cost-effective, less public and less acrimonious.

Mediation

A neutral mediator helps parties discuss interests, identify solutions and reach a binding or non-binding settlement. Mediation preserves relationships better than court fights, fosters creativity in solutions (e.g. structured buy-outs or share swaps), and controls cost.

Arbitration / Expert Determination

These are binding processes outside court: an arbitrator or expert reviews evidence and issues a decision. They offer confidentiality, procedural flexibility and finality, but with less appeal possibility. This path is often built into contractual dispute resolution clauses.

When Litigation Is Necessary

If ADR fails or is not viable, litigation becomes inevitable. Our team is well-versed in the full court process.

When to Consider Litigation

• One side refuses to negotiate in good faith
  
• The dispute involves fundamental legal rights or serious breaches
  
• Urgent interim relief is required (e.g. injunctions or freezing orders)
  
• A public ruling or declaratory judgment is needed
  
• Deadlock is harming the company irreversibly
  

What to Expect in Court

1. Pre-action protocol and formal correspondence
   
2. Filing of claim in the appropriate court (often the Business & Property Courts, Companies Court)
   
3. Disclosure of documents and evidence
   
4. Witness statements, expert reports (valuation, accounting, governance)
   
5. Oral hearings, submissions and judgment
   
6. Possible appeals
   

Relief may include:

• Order that the majority purchase the complainant’s shares
  
• Rectification of the articles
  
• Winding up of the company (just and equitable)
  
• Injunctive relief
  
• Damages or compensation
  
• Derivative actions (on behalf of the company)
  

We prepare clients thoroughly for the risk, timeline and cost of litigation, and help with strategic decisions about whether to press forward or settle.

Our Director & Shareholder Disputes Services

At Jonathan Lea Network we provide a full suite of dispute services tailored to your position, complexity and objectives:

Strategic Legal Advice & Diagnosis: From the outset we’ll clarify:

• Your legal rights, remedies and risks
  
• The strength of your case (based on facts, documents and governance)
  
• Commercial costs vs benefit of action
  
• Recommended strategy (negotiation, ADR or litigation)
  

We act not just as legal advisors but strategic partners.

Negotiation, Mediation & Settlement Support: We lead or support settlement talks, represent you in mediation, structure buy-out deals or share swaps, and draft binding settlement agreements. We aim to resolve swiftly and minimise further costs or business disruption.

Drafting, Reviewing & Enforcing Shareholder Agreements: We assist in creating or revising shareholder agreements and articles of association that genuinely reflect your interests. When others breach, we help enforce rights, interpret clauses, and negotiate or litigate accordingly.

Litigation Support & Representation: If litigation or derivative action is necessary, we handle all aspects: drafting pleadings, managing disclosure, instructing experts, conducting hearings, pursuing appeals, and enforcing judgments.

Valuation, Expert Guidance & Financial Analysis: Disputes often pivot on valuation of shares, financial statements, capital contributions or accounting issues. We work with leading accountants, forensic experts and valuers to build robust evidence.

Interim Relief, Injunctions & Safe-guards: When urgent steps are needed (freezing orders, injunctions to restrain share transfers or compel access to documents), we act quickly to secure your position.

Exit Mechanism & Share Buy-out Structuring: Sometimes the best resolution is an orderly exit. We advise on structuring share buy-outs, exit sales, redemption, or management buy-ins, negotiating fair terms and ensuring legally clean transitions.

Post-dispute Rebuilding & Governance Advice: Once a dispute is resolved, we help clients rebuild trust by implementing stronger governance, conflict resolution processes, board frameworks, periodic reviews and clarity in roles.

Why Do These Disputes Matter (and Why Resolve Fast)?