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Commercial disputes – how to ensure a disagreement doesn’t result in a crisis

If you run a business then it is almost inevitable that, at some point, you will face a dispute. Whether this is a disagreement over the terms of a contract, or a dispute with shareholders, it is important to deal with the issue promptly before the matter gets out of hand and potentially escalates.

Here, Lorraine Walker, a Solicitor with Mander Hadley, who specialises in dispute resolution, takes a look at the issues you need to consider should a dispute arise in your business:

How do contract disputes happen?

Contracts play an important part in so much of our lives. Normally we trust that a contract exists so that it protects the interests of both parties involved, but occasionally something might happen that creates a contract dispute.

Perhaps your business circumstances have changed in some way that has made keeping to the terms of a contract very difficult. Or perhaps a third party has drawn up a contract that you now feel is unfair or was misleading in some way.

Many businesses enter into a contract agreement with a third party only to be let down by them, which may be as a result of negligence or non-fulfilment or part-fulfilment of a service.

As a result of the Covid-19 pandemic, many businesses have struggled to meet their contractual obligations because of a shortage of goods and materials or workers being off sick.

What should I do if I have a contract dispute?

When a contract dispute arises then, depending on the type of contract, you can contact the other party and come to an informal agreement.

However, it is sometimes preferable and often more productive to instruct a solicitor who can sort out the contract dispute on your behalf.

There are a number of options available to you including:

Negotiation
Mediation and arbitration
Court proceedings

What happens if I am involved in a shareholder dispute?

Entrepreneurs rarely go into business together expecting to fall out at a later date, but unfortunately, shareholder disputes can – and do – arise for many reasons and it is important that entrepreneurs are prepared for all eventualities.

When a dispute arises, this can prove incredibly stressful for everyone involved, which is why it is important to seek specialist advice at the earliest possible opportunity.

Whether one shareholder has had a change of heart about the business, another has extracted money from the company without consulting the other directors, or shareholders simply no longer wish to work with one another anymore, disputes can turn ugly very quickly.

Regardless of the circumstances, it is important to ensure that everyone involved remains calm and doesn’t make any rash decisions which could later prejudice their position or have negative implications for the wider business.

More often than not, disputes of this kind can be resolved using a company’s articles of association or a written shareholder’s agreement – assuming that such an agreement has previously been put in place.

A shareholders’ agreement lays out the relationship between shareholders, and carefully documents what will happen if any difficulties arise.

This means that, in the event of a dispute, shareholders will need to act in accordance with what has been previously agreed. In this respect, these agreements can massively reduce arguments and any subsequent collateral damage to the business.

It is always wise for all shareholders to meet and draw up such an agreement at the earliest possible opportunity. Shareholders’ agreements can always be amended as and when business circumstances change and having such a document in place can prove vital in the event of any future disputes.

For help and advice on commercial disputes including contractual issues or shareholder disagreements, please get in touch with us.