Navigating operational stalemate

Strategic resolution of director deadlocks

Background

Bruce found himself embroiled in a contentious dispute with his brother, Luke. Both were directors and equal shareholders of a company, but their disagreement had led to a standstill in operations due to a directorial deadlock.

Need/Event

The management of the company’s affairs had reached an impasse. Bruce was excluded from the company’s daily operations and cut off from accessing the company’s accounting information, leaving Luke as the sole operator. Despite his lack of operational involvement, Bruce faced ongoing liabilities under various guarantees and the Corporations Act 2001 (Cth).

Seeking a resolution, Bruce consulted with his personal accountant at DAB Financial Group, who subsequently referred him to DAB Legal for expert advice on resolving the deadlock with Luke or finding an alternative way to extricate Bruce from the situation.

DAB Solution

DAB Legal’s initial attempts to communicate with Luke were unsuccessful, as the depth of the dispute and the breakdown of their relationship made joint operation of the company untenable. An agreement on a buy-out was also out of reach. A month into these efforts, Bruce’s accountant from DAB Financial Group alerted him to the company’s looming insolvency. With the risk of insolvent trading while Bruce remained a director, DAB Legal had to act swiftly to safeguard his interests. They notified Luke that appointing a liquidator was imperative. Unwilling to agree, Luke’s resistance prompted DAB Legal to prepare for an application to the Supreme Court of New South Wales for the appointment of a provisional liquidator.

Upon learning of the legal action Bruce intended to pursue, a settlement conference was called. At this juncture Luke proposed a buy-out. What followed was a rigorous negotiation underpinned by a preliminary valuation from the DAB Financial Group’s accounting team, which aimed to establish a fair market value for Bruce’s shares.

Satisfied with the valuation and the ensuing offer, Bruce agreed to the terms, which were formalised in a Deed of Settlement. To protect against any future claims in the event of the company entering liquidation, the Deed stipulated that Luke would make the payment from his personal funds and provide a personal guarantee as security.

Outcome

Considering Bruce’s personal situation, the negotiated buy-out was the most suitable resolution. Litigation to appoint a provisional liquidator and the subsequent liquidation process would have delayed any payout considerably. Given Bruce’s advanced age and financial obligations, waiting was not practical. The foresight of DAB Financial Group’s accountant in identifying the potential insolvency and developing an indicative valuation was crucial. It allowed DAB Legal to take proactive steps to prevent further insolvent trading under Bruce’s directorship, potentially saving him from liability for breaching his duties as a director. Moreover, the prompt valuation facilitated a swift and equitable settlement for Bruce, enabling him to resolve the deadlock without compromising his financial security.

Within DAB Financial Group our specialists formed a team to implement this unique solution for the client. See the solutions bar on the right to identify the DAB teams used to implement their solution.

Next Step

To find out how DAB Financial Group can help you and your business, leave a few details here and one of our consultants will CONTACT you for a FREE and confidential discussion.

Background

Bruce found himself embroiled in a contentious dispute with his brother, Luke. Both were directors and equal shareholders of a company, but their disagreement had led to a standstill in operations due to a directorial deadlock.

Need/Event

The management of the company’s affairs had reached an impasse. Bruce was excluded from the company’s daily operations and cut off from accessing the company’s accounting information, leaving Luke as the sole operator. Despite his lack of operational involvement, Bruce faced ongoing liabilities under various guarantees and the Corporations Act 2001 (Cth).

Seeking a resolution, Bruce consulted with his personal accountant at DAB Financial Group, who subsequently referred him to DAB Legal for expert advice on resolving the deadlock with Luke or finding an alternative way to extricate Bruce from the situation.

DAB Solution

DAB Legal’s initial attempts to communicate with Luke were unsuccessful, as the depth of the dispute and the breakdown of their relationship made joint operation of the company untenable. An agreement on a buy-out was also out of reach. A month into these efforts, Bruce’s accountant from DAB Financial Group alerted him to the company’s looming insolvency. With the risk of insolvent trading while Bruce remained a director, DAB Legal had to act swiftly to safeguard his interests. They notified Luke that appointing a liquidator was imperative. Unwilling to agree, Luke’s resistance prompted DAB Legal to prepare for an application to the Supreme Court of New South Wales for the appointment of a provisional liquidator.

Upon learning of the legal action Bruce intended to pursue, a settlement conference was called. At this juncture Luke proposed a buy-out. What followed was a rigorous negotiation underpinned by a preliminary valuation from the DAB Financial Group’s accounting team, which aimed to establish a fair market value for Bruce’s shares.

Satisfied with the valuation and the ensuing offer, Bruce agreed to the terms, which were formalised in a Deed of Settlement. To protect against any future claims in the event of the company entering liquidation, the Deed stipulated that Luke would make the payment from his personal funds and provide a personal guarantee as security.

Outcome

Considering Bruce’s personal situation, the negotiated buy-out was the most suitable resolution. Litigation to appoint a provisional liquidator and the subsequent liquidation process would have delayed any payout considerably. Given Bruce’s advanced age and financial obligations, waiting was not practical. The foresight of DAB Financial Group’s accountant in identifying the potential insolvency and developing an indicative valuation was crucial. It allowed DAB Legal to take proactive steps to prevent further insolvent trading under Bruce’s directorship, potentially saving him from liability for breaching his duties as a director. Moreover, the prompt valuation facilitated a swift and equitable settlement for Bruce, enabling him to resolve the deadlock without compromising his financial security.

Within DAB Financial Group our specialists formed a team to implement this unique solution for the client. See the solutions bar on the right to identify the DAB teams used to implement their solution.

Next Step

To find out how DAB Financial Group can help you and your business, leave a few details here and one of our consultants will CONTACT you for a FREE and confidential discussion.