How to resolve director disputes and find a path forward with mediation

Running a business with a co-director requires trust, cooperation and a shared vision.

But when disagreements arise, especially between directors with an equal (50/50) shareholding, resolving the conflict can be extremely challenging.

Whether you are business partners facing an impasse or a divorcing couple trying to untangle business interests, finding a way forward often requires outside intervention.

Disputes between directors can develop for many reasons – a difference in business strategies, financial decisions or a change in personal relationships, such as a divorce.

In some cases, the conflict becomes so serious that one or both parties want to walk away altogether. For directors who can no longer see eye to eye, liquidating the company may seem like the cleanest solution.

Who would you turn to for help?

Accountant

When considering liquidation, most directors first approach their accountant because they understand the company’s financial health and can advise on the tax implications and potential outcomes. Your accountant can also assess whether the business is solvent and if a Members' Voluntary Liquidation (MVL) is viable.

Solicitor

Directors in dispute often consult a solicitor for legal guidance on shareholder rights, winding-up petitions, and the implications of liquidation under company law. However, solicitors often fail to stress how legal fees for court proceedings can quickly escalate. According to a survey by the British Chamber of Commerce, 60 per cent of small businesses report that legal disputes cost them over £10,000. Some spent significantly more. Not to mention the fact that Court cases can drag on for months or even years, draining valuable company resources.

Mediator

Not many business owners know about mediators, but when it comes to director disputes, there’s no-one better placed to understand their complexities – and we have the experience to guide you through the most difficult conversations.

Before heading to see a solicitor (who will be happy have you on the hook and paying their fees), it is worth considering professional mediation because it can offer a more cost-effective route. It is also less adversarial and allows all parties to communicate openly.

We regularly help business owners to find practical, legally-sound solutions by identifying common ground and explore mutually-beneficial solutions during mediation – whether that involves a restructure, buyout or a voluntary liquidation.

When disputes over share value or financial matters arise, we would encourage you to bring in your accountant (or independent financial expert) to help assesses the value of the company or shares and provide an objective view.

What options are available to directors in dispute?

A Members’ Voluntary Liquidation (MVL)

A Members’ Voluntary Liquidation (MVL) is one option available when the company is still solvent. Through this process, the company’s assets are sold and surplus funds are distributed to shareholders. This can be a practical resolution for directors seeking to split their business interests amicably.

However, when there are only two directors with a 50/50 ownership split, one party cannot unilaterally force liquidation. If the directors reach a deadlock, resolving the dispute requires either mutual agreement, legal action or professional mediation.

‘Just and Equitable Grounds’ liquidation

In situations where directors are unable to reach an agreement, UK insolvency law offers a potential solution: applying to the courts to liquidate the company on ‘just and equitable grounds.’

This legal route is designed for cases where mutual trust and confidence between directors is irreparable. If the court finds that the company cannot continue to operate effectively due to the dispute, it may order a winding-up of the business.

While a winding-up petition on just and equitable grounds is relatively rare, it can be an effective measure when other avenues have failed.

The court will consider whether:

• There is a complete loss of mutual trust and confidence.

• The directors are unable to reach decisions or manage business effectively.

• Alternative solutions, such as buying out one party, have been explored.

Buying Out Shares

Liquidation is not the only option for resolving director disputes. In some cases, one director may prefer to continue operating the company alone. When this happens, a buyout of shares could be the solution.

For divorcing couples, a buyout may form part of the financial settlement. One party could sell their shares to the other, who then continues running the business independently. This allows the company to remain intact while giving both individuals a clean financial break.

Starting Fresh After Liquidation

If directors ultimately decide to liquidate the company, there can be an upside. Each party may be able to set up a new business and take existing clients with them, provided they do not breach any legal or contractual obligations. This can offer a fresh start, free from the conflicts that caused the original deadlock.

Mediation & solving director disputes without going to court

Director disputes can be emotionally and financially draining. But while litigation might seem like the only solution, it is often costly, time-consuming and disruptive.

Unlike litigation, mediation is an alternative dispute resolution (ADR) method which focuses on collaboration and compromise. Not only can it help to preserve personal and professional relationships, it also encourages both parties to actively participate in crafting the solution, meaning the outcome is often more sustainable.

Whilst it is not easy to exit a business under testing circumstances, it can be done successfully. Sometimes, just having the help of a neutral facilitator to structure the negotiations can lead to a resolution.

At Westwood Mediation, we are committed to delivering the highest level of professionalism and expertise to resolve your director dispute. If you’d like to explore mediation as a way to protect the future of your business, get in touch to schedule an informal discussion.