Director disputes – why they happen and what to do about them

A director dispute occurs when members of a company’s board of directors have disagreements or conflicts regarding the management, strategic direction or decision-making of the company. These disputes can have significant implications for the company’s operations, governance and overall success.

Common causes of director disputes

Director disputes are not uncommon and can arise from a variety of sources:

Strategic direction. Differing opinions on the company’s strategic direction, such as expansion plans, market focus or product development strategies.
Financial matters. Disputes may arise over budget allocation, investment priorities or dividend policies.
Management performance. Concerns in relation to the performance of the company’s management team, which could include their ability to execute strategy, achieve goals or address operational challenges.
Corporate governance. Disagreements over corporate governance practices, board composition, or the allocation of responsibilities among directors.
Conflicts of interest. Allegations of conflicts of interest that affect a director’s ability to act in the best interests of the company.
Legal compliance. Differences in interpretation or adherence to laws, environmental regulation or corporate governance standards.

Resolving director disputes

Whatever type of director dispute, early intervention is imperative to limit damage to the business and maintain its stability.

Here are some steps to consider:

Informal communication. Before taking any formal legal action, it is best to try to narrow down the issues and resolve the dispute informally. This can be done by way of direct discussion between the parties involved.
Mediation. If direct communication fails to resolve the dispute, consider engaging in mediation facilitated by a neutral third party. Mediation provides a structured process where parties can voice their grievances and work towards a mutually acceptable solution through the mediator.
Arbitration. In cases where mediation is unsuccessful or inappropriate, arbitration can be pursued. Arbitration involves presenting the dispute to a neutral arbitrator who will make a binding decision based on the evidence presented by both parties.
Legal Action. If all attempts at resolving the dispute fail, and as a last resort, legal action may be pursued through the court system. Court proceedings can be time-consuming, costly, and complex, but it may be necessary if other methods of resolution have been exhausted or if there are serious allegations of misconduct.

Conclusion

Director disputes can have an adverse impact on a company and on the individuals involved. These disputes can be daunting and challenging. In many cases, the company’s bylaws or corporate governance policies will outline procedures for resolving disputes, such as mediation, arbitration, or seeking independent legal advice. However, if disputes cannot be resolved internally, they may escalate to legal action or regulatory intervention, which can have broader implications for the company and its stakeholders. Therefore, proactive management of director disputes is essential to maintaining effective corporate governance and ensuring the long-term success of the company.

At AWB Charlesworth Solicitors we have extensive experience in dispute and litigation matters. If you need legal advice at any stage, contact:

David Tear | 01274 037073 | david.tear@awbclaw.co.uk