Shareholder Disputes: The Importance of Obtaining Early Advice

By James Gould on

Last week, the Telegraph reported that litigation has commenced in the High Court between Sir Terence Conran and his former business partner, Des Gunewardena.

Sir Terence is well known to the public as a celebrity interior designer, restaurateur and a significant property investor by virtue of his company, Conran Holdings Limited. Mr Gunewardena is also a renowned restaurant entrepreneur, whose company owns multiple restaurants in London and also the Angelica and Crafthouse restaurants in Leeds.

What is the dispute?

The dispute between Sir Terence and Mr Gunewardena dates back to the period when Mr Gunewardena worked for Conran Holdings and was a shareholder in the company. In December 2014, Mr Gunewardena left the company (the reason for his departure is disputed) and triggered a clause in his contract that required his shareholding in Conran Holdings to be bought back by the company.

The dispute that has now arisen concerns the value of the shareholding at the time it was bought back. At the time he left the company, Mr Gunewardena was paid £1,254 for his shares. He now claims that he should in fact have been paid £3,000,000. The reason for the disparity relates to the method for calculating the value. Sir Terence argues that the value of the shareholding was correctly calculated by linking it to the recent profit or loss of the company at the time Mr Gunewardena left. Mr Gunewardena, however, argues that an entirely different method of valuation should have been used. Very little is known to the general public at this stage as to exactly what the contract stated on this particular point, but no doubt this will come out in the wash as the litigation progresses.

What can we learn from this dispute?

One way or another, this case highlights the difficulties that can arise for parties when a shareholder dispute arises.

Shareholder disputes are relatively common, particularly in small companies where there are only a few shareholders. Should a shareholder dispute arise, there are a number of remedies available to the disgruntled shareholder, ranging from an unfair prejudice claim pursuant to s.994 Companies Act 2006, to a derivative claim. The ultimate consequence of the majority of these actions is that it usually leads to the disgruntled shareholder’s shareholding being bought out. This is logical as, if the relationship has broken down, then it is impossible for the business relationship to continue, particularly in a small business where the shareholders are possibly also the company’s only directors.

Should a shareholder find themselves in a situation whereby they need to be bought out of a company, it is important that at that stage they take proper legal advice on the remedies available to them and seek a fair and impartial valuation of their shareholding at an early point, to attempt to prevent subsequent protracted litigation.

Do you believe that your shareholding in a company has been prejudiced and require legal advice? If so, the experienced Commercial Dispute Resolution team at Levi Solicitors LLP can assist you. Please call today on 0113 244 9931.

 

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