When Business Partners Become Opponents: Navigating Director and Shareholder Disputes

Shareholder and director disputes are becoming increasingly common, particularly as businesses face heightened financial and operational pressures.

When conflict arises between shareholders, the ideal outcome is to resolve the issue without going to court. If there is a breakdown in the relationship, this usually happens in one of two ways:

• the business is sold to a third party; or
• one shareholder buys out the other, often following an independent business valuation.

When Agreement Isn’t Possible

If shareholders and directors cannot reach a resolution, one or both parties may turn to the courts.

The two most common legal avenues are:

1. Winding Up the Company on “Just and Equitable” Grounds

A court may order the company to be wound up—even if it is solvent—when it is no longer viable due to issues such as:

• a breakdown in the company’s core purpose
• management deadlock
• irreparable deterioration in shareholder relationships
• fraud, misconduct, or oppressive behaviour
• breaches of the Corporations Act 2001, including directors’ duties

2. Oppression Proceedings

Minority shareholders may bring an oppression claim if the majority shareholders or directors act in a way that is unfair, prejudicial, or discriminatory. The conduct does not need to be illegal, but it must go beyond mere disagreement.

Examples of oppressive conduct include:

• excluding a minority shareholder from company affairs
• denying access to information
• diverting corporate opportunities to themselves or associates

Possible court remedies include:

• winding up the company
• amending the company constitution
• ordering the majority to purchase the minority’s shares, often at a value reflecting what the shares would have been worth had the oppressive conduct not occurred

Key Takeaway

If you find yourself in a director or shareholder dispute, you have legal options. Seeking advice early can help protect your interests and guide you toward the most effective resolution.

If you would like further information, please contact Catherine Ballantyne, Principal, Hunt & Hunt at [email protected] or +61 3 8602 9200.