In owner-managed businesses, the lines between the commercial and the personal can often become blurred, particularly where family members are involved in running the business.
Where the business comes under financial pressure or there are disagreements around the future direction and strategy for the business, relations can become strained and where the individuals have multiple roles (director; shareholder; parent; child; sibling) disagreements can quickly escalate and entrenched positions can lead to disputes.
Reaching a consensual solution is generally the best option: mediation and other alternative dispute resolution options are often significantly quicker and cheaper than litigation and private disputes are not opened up to public scrutiny through the court process.
Reaching a negotiated outcome and avoiding the time, cost and uncertainty of litigation takes an open mind and preparation. Here are five points that should be considered when trying to ensure that a negotiated outcome has the best prospects for success:
1. Have an open mind
Negotiated outcomes can be very flexible, and can often deliver results more quickly than the traditional court process. Is there a benefit in reaching a resolution more quickly and what price would you put on that? You should think carefully about any “red lines” you have. Why are they immovable? Negotiated solutions will require a degree of compromise on both sides of the dispute. Consider what you might be willing to compromise to reach a settlement.
2. Keep records
Where there are close business and family relationships, the breakdown in the relationship can often happen over a prolonged period of time. It can be helpful when considering the legal remedies and in negotiations to have a clear record of the timeline of key events and to be able to refer to any documents (including emails and text messages) sent at the time. If a negotiated settlement can be reached, we will generally advise clients to record the agreed terms in a formal agreement to give all parties certainty about what has been agreed, and to provide a mechanism for enforcing the agreed terms if necessary.
3. Take advice (early)
It is important to understand the strengths (and any weaknesses) of your position, and the other party’s position, as that will influence your assessment of risks and your proposed strategy. Taking advice early could also mean a quicker resolution - a long running litigation might impact on the future plans for the business: How will customers feel about any dispute between the owners of the business? Do you risk jeopardising sales? Will prospective exit strategies be impacted?
4. Be realistic
Legal advisors will always present their client’s case strongly, particularly in correspondence with their opponents. However, no litigation is without risk. No lawyer worth their salt will guarantee success. The role of a judge in the litigation process is to hear and review the evidence and to come to a legal view based on their assessment of the evidence. But the trial process is inherently uncertain – witness recollections can vary and they may not stand up well to cross examination. Reaching a consensual solution achieves a predictable outcome, and there is typically significantly more flexibility compared to the outcomes that can be achieved in a court process. Be realistic about what you need to achieve to reach an acceptable outcome – one you can live with to enable you to move on and look to the future.
5. Assess the downside risk
Clients often start the litigation process looking to be vindicated and proved right. But the legal process may not achieve a total vindication for either party. The outcome might be a mixed success or worst case the claim or defence fails in its entirety. Litigation also comes with significant costs. In addition to any legal and court fees, the time and energy devoted to preparing a court case can be significant and is often underestimated. Owner managers are very hands on in their business. They are the face of the business. They have the customer relationships. They are also often the sales department; the HR department; the accounts team and the technical department. Taking an owner manager out of the business for days at a time to collate documents; prepare witness statements and attend meetings with the legal team often has a very real cost to the business. The stress and pressure of litigation can also impact directly and indirectly on those involved and that is amplified when personal or family relationship are also at play. What wider ramifications might litigation have for you and your business that could be avoided by reaching a negotiated outcome?
At Shepherd and Wedderburn we recognise not only the need to provide owner managers with high quality legal and strategic advice to help resolve disputes, but also the importance of ensuring that their mental health gets the priority it deserves. We are delighted to be working with leading wellbeing services provider Care first to enable owner managers involved in significant disputes impacting on their role in, or potentially the very existence of, their business, free access to a wellbeing assistance programme. Care first offers 24-hour confidential counselling, information and support with all calls answered by counsellors accredited by the British Association for Counselling and Psychotherapy.
If you need advice in relation to a dispute with your business partner, please get in touch with Gillian Carty or your usual Shepherd and Wedderburn contact.