Having professional support key in shareholders disputes
By AdvocateDaily.com Staff
Having an experienced accounting team in your corner can make a big difference in a shareholder dispute, Toronto forensic accountant and chartered business valuator Patricia Harris tells AdvocateDaily.com.
Harris, partner with Fuller Landau LLP, says such disputes can arise for a variety of reasons — be they disagreements over the direction of the business, dishonesty on the part of other shareholders, or discrepancies in compensation.
Regardless of whether you're at an early stage in a dispute, preparing for mediation, arbitration, or court, having professional support is integral, she says.
Forensic accountants can provide damages quantifications that result from such things as fraud, loss of profit, breach of contract, construction disputes, or breach of fiduciary duty, Harris says. Should litigation support be needed, they can also provide expert witness testimony, critique opposing experts’ reports, and assist with examinations for discovery, and expert cross-examination at trial.
In any dispute, a shareholder agreement is your first line of defence, she says, adding the agreements should always be prepared by a lawyer, and reviewed or updated when any relevant changes occur within the company.
The document typically outlines how the company should be operated and managed, and defines the rights, obligations, privileges, and protections of the shareholders.
“An effective shareholder agreement should anticipate events that are reasonably likely to occur in the future of the company and its shareholders, and how those events will be handled. In particular, the shareholder agreement may detail how a dispute is to be handled, and a method for a shareholder buyout,” says Harris, noting that Fuller Landau is a long-time trusted resource to lawyers, insurance companies, and businesses, offering investigative insight and comprehensive damages quantification assessments.
When a dispute can’t be settled without intervention, mediation is often the next step, she says.
“Both parties assemble with an impartial mediator to isolate disputed issues in order to develop alternatives and to ultimately reach a settlement. Often mediators will privately request settlement proposals from each of the parties,” Harris says.
“The mediator then meets with each party and their counsel to determine their reaction to the proposal and their counterproposal, if any. The mediator continues to meet separately with each party in an attempt to reach a settlement unless the mediator believes a group meeting would be beneficial.”
Arbitration is another option and may be the next step when mediation does not result in a resolution. It is conducted before a neutral third-party arbitrator, such as a retired judge or an experienced lawyer, who reviews the evidence and renders a decision.
Harris says arbitration is often preferred over the courts when the parties wish to maintain the confidentiality of a decision. It is also quicker and allows the disputing parties to select an arbitrator for their experience and expertise in resolving shareholder disputes, she says.
However, sometimes reaching a final resolution requires taking the matter to court, Harris says.