Published: 20th June 2022
Although it’s common practice to split a shareholding equally between two people, and it’s generally done in a spirit of positivity - the lack of a ‘casting vote’ can sometimes lead to stalemate, and stall business growth.
If there’s a serious disagreement with little apparent chance of reconciliation, one director might decide they want to close the company down, for example. If the other disagrees, it’s a matter of some concern.
So what is the best way to proceed in the event of a deadlock, and can a 50% shareholder liquidate a company without the agreement of the other director?
The company’s Articles of Association will lay out how disputes should be resolved, but when there are only two members who each have an equal shareholding, the lack of the casting vote can hinder progress.
It may be possible to resolve the stalemate with the help of professional mediation, which allows both parties to step back and review the situation without direct conflict. This can work in some cases, but there’s also another way to end a dispute of this type – a winding up petition on ‘just and equitable’ grounds.
Winding up petitions are typically issued by creditors who are intent on forcing a business into liquidation. A ‘just and equitable’ winding up petition is different, however. It’s less commonly used but can be effective in ending a deadlocked dispute between 50/50 shareholders.
Details of the situation at hand are presented to the court, and the court decides how the business should move forward. They assess whether trust between the shareholders has gone, and how best to proceed.
This type of winding up petition is effective under these circumstances as it removes the stalemate and allows a decision to be made by a trustworthy third party. So what might a court decide in this situation?
The court may decide the best way forward is for one shareholder to buy out the other. If this is possible it allows them to carry on and take the business forward as they see fit, whilst enabling their counterpart to step away from the company.
It must be said that it’s helpful to reach a resolution as quickly as possible in these circumstances. A serious dispute between directors is very distracting – it can quickly affect profits and the business’ reputation.
It’s advisable to seek professional advice as soon as possible if you’re a 50% shareholder and are in dispute with the other director. Whether you want to liquidate your company or carry on alone, we can provide independent guidance that helps you move forward.
Please get in touch with our expert team at Begbies Traynor Group. We offer free, same-day consultations so we can quickly assess your situation and present your best options.