Face inevitably disputes with suppliers, customers, landlords, other businesses, etc. it’s very common when operating a business. It can be varied depending on the parties that the business is dealing with. If the disputes were minor such as small misunderstandings and miscommunication of meeting time, there is normally no urgency to solve it; however, if there are major disputes like breaches of contract between companies, then it becomes much more complex and time-consuming. Such disputes may reduce the performance of the company, negatively impact on business relationships and make everyone stressful. So, it is always important to take efficient steps to resolve disputes as it will save time and resources and keep the business relationship tight.

 

Dispute between internal members

The common disputes that the company often faced are between internal members of the company such as directors and shareholders. The reason for the disputes is various. It can be simple like miscommunication between them, or it can be complex enough like breach of director’s duties, or it can be combined with simple and complex reasons.

Often, the dispute resolution provisions are already in place when the company is registered. It usually provides procedures and cost of Alternative Dispute Resolution (ADR) prior to the commencement of the legal proceeding.

 

However, if there are no dispute resolution provisions set up, there are three available options to take for dispute resolutions:

 

  1. Alternative Dispute Resolution (ADR); and
  2. General Meeting Resolution; and
  3. Legal proceeding in the court.

 

  1. Alternative Dispute Resolution (ADR)

This process can save time and money and minimize the damages to the ongoing relationship with another party. The parties to the dispute may prefer the ADR process when the relationship between the parties is unable to be broken due to their works or something else.

 

Initial Negotiation

Firstly, one of the parties issued a ‘notice of dispute’ to the other party. Both parties then engaged in negotiation by themselves or their nominees to resolve the disputes. If the dispute was not resolved for 10 business days after the negotiation was undertaken, the dispute must be referred to the mediation in accordance with The Institute of Arbitrators and Mediators Australia Rules for the Mediation of Commercial Disputes.

 

Mediation

Mediation is the most common type of ADR process. Both parties agree to hire an independent mediator who assists the parties to reach the agreement. Whatever the parties speak and submit is confidential, so they do not have to worry about any material or words during the mediation to be used as evidence in the court later. Unlike the court proceeding, the mediation is an informal process which means that the parties can discuss collaboratively to reach the agreement. The costs and disbursements of a mediator are usually paid by both parties equally. If the dispute remains unresolved for more than 30 business days, any party may commence the legal proceedings against the other party to the court.

 

  1. General Meeting Resolution

Another possible option to resolve the dispute is a general meeting resolution. The directors or shareholders can call a general meeting to resolve the dispute. The directors’ power to call a general meeting is given by s249C of Corporation Act 2001. For shareholders, section 249D of Corporation Act provides that shareholders can request directors to call and arrange a meeting if they are holding 5% or more voting shares of the company.

The directors or shareholders may resolve the dispute by the resolution via the general meeting. An ordinary resolution requires a simple majority of votes. A special resolution must be passed by 75% or more votes cast by shareholders.

Following matters need the special resolutions:

  1. Adopting, repealing or modifying the company’s constitution (s136(2)); and
  2. Selective reduction of share capital (s256C(2)); and
  3. Changes of the company name; and
  4. Changes of the type of company such as a private to public company; and
  5. Winding up the company.

The company constitution may provide that some critical business matters require the special resolution. The critical business matters typically include: dividends, the appointment of directors, issuing new shares in the company etc.

 

  1. Court proceeding

Parties to the dispute may seek the court proceeding as a last resort or at the first – depending on the nature of the dispute. If the dispute relates to breaches of directors’ duties according to the Corporation Act, it may be more adequate to start the legal proceeding at the first point as the ADR process and the resolution via general meetings do not have any enforcing power to make directors admit and compensate their breaches. If a party wanted to make a claim or a proceeding under the Corporation Act, the appropriate jurisdiction of the claim or proceeding is Federal Court of Australia and Supreme Court of each State or each Territory.

Dispute Between Directors and Shareholders

The common disputes between directors and shareholders can be simple as a miscommunication; or more complex like breach of director’s duties; or any various reasons.