Most disagreements in family businesses are minor and can be resolved without a modicum of fuss. But what happens if the family members end up embroiled in a bitter dispute over how the business should be run?
The recent case of Waldron v Waldron highlights the issues a successful family business may face when a dispute breaks out between its members, especially when there is money on the line.
The company was established by a father whose four children eventually inherited the shareholding. The siblings worked together in the business but the elder brother began to take a more dominant role. He became the Managing Director and after time, the majority shareholder. During the 2008 crash, the business suffered financial difficulties and some of the shares were sold to a third party investor.
The dispute first arose when the elder brother incorporated another company, to purchase the assets of a business in administration, later using the new company to hire these assets to the family business. Two of the siblings accused him of extracting money for his own gain by charging over inflated hire charges to the business via the new company.
The eldest brother approached the third party investor to acquire its shares in the business. The siblings could not agree on how the shares should be acquired, with the elder brother wanting to acquire all shares. His siblings wanted them to be distributed in the same proportions as their existing shareholdings.
Matters came to a head when the elder brother restricted the other siblings’ access to their business email accounts. The siblings then offered a sum of money to the business’ IT Manager to get access to the elder brother’s emails. When the elder brother discovered this, he sacked his siblings.
The siblings petitioned in the High Court that the elder brother was running the business in a way which was prejudicial to their minority shareholding interest and sought an order that the elder brother be forced to buy their shares.
The Judge refused their petition. As a result, the siblings were locked in the business together having spent thousands of pounds and years on the legal battle.
This case stands as a reminder that company directors need to carefully consider how the business is run and the impact it may have on minority shareholders – especially when that minority shareholder is a relative. For shareholders, if you consider a company is being run to your detriment, then you should act quickly to protect your interest. It also highlights the importance of getting shareholders agreements properly drawn up when a family business is established.