Don't let a dispute threaten the future of your company
Setting up a company to run a business can be a relatively straightforward process. Most people know that shareholders and directors are the key components of a company.
Disputes between shareholders and directors, or between multiple directors, can arise in a range of circumstances and have the ability to threaten the company's ability to trade.
The specific facts and circumstances of each case will be unique, however most disputes commonly occur when:
- there is disagreement over the direction of the business; or
- directors fail to fulfil their duties.
What duties does a director owe to a company?
Directors owe a number of duties to a company. These include:
Duty to act in good faith
A director must exercise their powers and responsibilities in good faith in the best interests of the company. Interests of the company include the interests of existing shareholders.
Duty to exercise powers for a proper purpose
A director must exercise their powers and responsibilities for a proper purpose. A purpose is proper if it is in the interests of the company. For example, a director would be acting for a proper purpose if they issued shares to raise capital for the company. On the other hand, a director would not be acting for a proper purpose if they issued shares in order to destroy the existing voting majority or create a new majority.
Duty to act with care and diligence
A director must act with the degree of care and diligence that a reasonable person would exercise if they were in the same position as the director.
Duty not to improperly use position or information
A director must not improperly use their position or information obtained from their position for their own personal advantage or to disadvantage the company.
Duty to disclose interests
A director with a material personal interest relating to company affairs must give other directors notice of the interest.
Duty not to trade while insolvent
A director has a duty to ensure that the company does not trade if it is insolvent, or if there are reasonable grounds for suspecting that the company is insolvent. A company is considered to be insolvent if it is unable to pay its debts when they are due.
What happens if a director breaches their duties?
Directors who are found to be in breach of their director duties may face serious consequences. These consequences could include being:
- found guilty of criminal offence – the current penalties include imprisonment of up to 5 years and/or a fine of up to $200,000;
- found to have contravened a civil penalty provision – the current penalty is a fine of up to $200,000;
- disqualified from managing any companies in the future; or
- held personally liable for any company losses caused by the breach in duties.
Act quickly to avoid legal proceedings
Most types of disputes have time limitations. These limitations will vary based on the specific nature of the claim, however it is always in your best interests to seek advice as soon as a problem occurs to avoid the possibility of your dispute ending up in court.
We can assist with negotiating a commercial settlement including participating in a mediation to ensure disputes can be resolved in a timely and effective manner, without the need for court proceedings.
We can help
We are a well-established commercial litigation practice, with years of experience working through complex director disputes with a broad range of clients to achieve positive outcomes.
Our team can help you by:
- Providing you with advice about your rights and obligations as a director in a company
- Assisting you to negotiate a resolution regarding an existing dispute within a company
- Representing you in any legal proceedings relating to a company or director dispute
If you have an enquiry about a director or partnership dispute, get in touch with us today.