Director and Partnership Disputes

What are Director and Partnership Disputes?

Disputes commonly arise between directors of a company, or between parties to business partnerships. These types of disputes can have a significantly negative impact on the workplace and general business performance, as well as on the personal lives of the people directly involved in the dispute.

It is essential to tackle the crux of the dispute early on in order to resolve the conflict as quickly, efficiently, and inexpensively as possible.

At Gibbs Wright Litigation Lawyers, we aim to achieve a fast and cost-effective resolution to the dispute. However, if our client’s instructions require it, we will press to dissolve the partnership or company.

Director Disputes

Director disputes generally arise in relation to:

  • Personality clashes;
  • Breach of directors’ statutory duties (e.g. Duty to Avoid Conflicting Interest, Duty to Act in Good Faith, Duty to Act with Care and Diligence, Duty Not to Use the Position of the Director Improperly);
  • Breach of directors’ fiduciary duties;
  • Financial management of the company;
  • Non-financial management of the company;
  • Breach of tax obligations;
  • Failure to provide financial, accounting, or statutory information;
  • Breach of shareholder agreements;
  • General management of the company; and
  • Ethical concerns.

The above list is not exhaustive, and the key takeaway is that acting as a director of a company can be a minefield of potential disputes. Some of these disputes can even result in a director being held personally liable for loss or damage incurred by the company.

A company director is responsible for the management of a company’s affairs. This is commonly a high-pressure, high-stress position due to the vast number of responsibilities a director will have, both as a result of the general duties of their role and in relation to duties and obligations imposed on them by law.

Even where someone has not officially been appointed as a director under the Corporations Act 2001 (Cth), they may still be considered a director if:

  • They engage in conduct that is analogous to someone who is a director of the company, such as exercising discretion and control over a company’s finances or resources (also known as a ‘de facto director’); or
  • The company’s other directors and staff usually act in accordance with their instructions (also known as a ‘shadow director’).

Whether someone is acting either as a shadow or a de facto director can become particularly relevant when disputes arise.

A company and its individual directors and individual shareholders are all separate legal entities. The director(s) control the company and the shareholders own the company. Although directors have a general duty to take the shareholders’ interests into account when making decisions on behalf of the company, the directors’ decisions will, at the end of the day, be based on his or her own beliefs of what is best for the company.

The legal separation between a company and its director(s) means that directors will generally not be personally liable for losses incurred by the business.

Business activity inherently involves risk. When trying to achieve the best returns for their company, directors can sometimes be drawn towards higher-risk ventures. This must be weighed up against a directors’ general legal duties and obligations.

Where directors overstep their duties, they could be held personally liable for losses the company may incur as a result. As such, whether you are an official director or a shadow or de facto director, any allegation that you have breached a legal duty should be taken seriously.

Partnership Disputes

A partnership is a contractual business structure in which two or more persons operate a business as co-owners and share or divide income generated by the business. Each partner is responsible for the actions of the other, including liability for business debts. Profits are also shared equally (or as agreed according to a profit-sharing agreement) between the partners.

Ideally, all partnership agreements would be set out in a clearly worded written agreement. However, this is often not the case; many partnerships arise through ongoing conduct between two people, and the only written evidence of a partnership agreement may be text messages or emails.

In Queensland, partnerships (both with or without written partnership agreements) are regulated by the Partnership Act 1891 (Qld) (the Act).

Partnership disputes generally arise in relation to:

  • Whether or not the relationship can be categorised as a ‘partnership’;
  • Underperformance of one partner;
  • Unauthorised use of the partnership’s resources;
  • Quality and control expectations;
  • Financial management;
  • Competing interests;
  • Unequal workloads;
  • Ethical concerns;
  • Capital gains division;
  • Capital contributions;
  • Management of conflicts;
  • Varying remunerations of partners including profits distributions; and
  • Management of personality conflicts.

Partners can end up in disagreements with one another for a myriad of reasons, and unlike corporations and directors, there is no legal separation between the partner and the actual partnership. Shared profits come with shared liabilities, and this often puts additional strain on the relationship between partners to a partnership agreement.

How we can help you

Whether you are a director of a company or a partner in a partnership, Gibbs Wright Litigation Lawyers have the knowledge and experience to help you resolve any dispute, no matter how complex.

The first step in resolving a dispute is understanding what your rights are. Litigation is often compared to chess for a number of reasons. Understanding where you stand, and where your opponent stands, is vital in making the right next move.

Our lawyers are experienced negotiators. Very few disputes make it all the way to court, and the best litigators are ones who know how to resolve a dispute without the need for a protracted and costly court battle. This can often require that parties take part in a dispute-resolution process, such as mediation or arbitration.

Unfortunately, not all disputes can be negotiated or mediated. Where parties to a dispute have had a personal falling-out, they are less likely to be willing to engage in meaningful discourse.

Litigation is an adversarial process that requires knowledge, experience, and strategic skills. At Gibbs Wright Litigation Lawyers, we have the knowledge and experience to assess your unique case and devise a strategy that will lead you to a successful outcome.

Whether your dispute is one that can be resolved with a simple letter, or if it proceeds all the way to trial, you need a lawyer who will fight hard for your rights.

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