Minimising the fallout from your fall-out
An expert panel laid out some hard truths for those who think forming a business partnership based on friendship, goodwill and shared vision is sufficient to avoid future conflict.
A webinar held by TheBusinessDesk.com in partnership with Walker Morris LLP and Armstrong Watson, heard about the problems which can arise when a company is established in a manner which fails to protect the interests of all parties.
Panellists explained how potentially thorny issues can be avoided through watertight partnership/shareholder agreements or agreement at the outset about the position on exit.
The experts included Lynsey Oakdene, director in the commercial dispute resolution team at Walker Morris, Louise Norbury-Robinson, senior associate at this same team, and Matthew Geale, head of forensic accounting at Armstrong Watson.
The webinar was chaired by Ben Ormsby, editor of the TheBusinessDesk.com in Yorkshire.
Norbury-Robinson said while every dispute is different, she and her colleagues identified some common themes, such as breakdown in personal relationships, generational conflict, fallings out over perceived misuse of business funds or perceptions that individuals are failing to do their fair share of work.
She cited a case of a conflict involving ownership of land used by a car dealership partnership. “A partnership in itself is not a legal entity that can own property,” she said.
“The dispute was down to a lack of understanding at the outset as to the basis on which the partnership was using this property and how the partnership should be remunerated.”
Geale said people often struggle to define the difference between personal and business relationships. And he added disputes can ironically arise from a company’s growth and success.
“Where a business grows from a £1m turnover to a £20m turnover that will bring about change, there’s no way to avoid that,” he said. “It’s about recognising change will happen and how you’re going to adapt to it.”
Oakdene said disputes can break out when a business evolves into something very different from what was originally envisaged.
“You can also have internal changes, such as a case where a partner left the business because he’d started a relationship with someone within that business,” she said. “This changed the dynamic between all the partners and caused a dispute.
“They you have disputes within farming partnerships which often have significant land holdings with a lot of development value. When the older partners – the parents – die, the siblings inherit and this can cause breakdown.”
She said rather than just relying on a hopeful attitude, business partners at the start of a venture should have a conversation about what they intend for the company and their plans for any property involved with the enterprise
“If you put these things down in writing that’s ideal,” she said. “Having a paper trail of people’s intentions can be very helpful further down the line.”
Norbury-Robinson warned disputes can become more complicated when shareholders and directors involved are the same people.
“You can have a group of people operating a limited company that’s also a partnership,” she explained. “The lines can become quite blurred if people are not on top of what the legal structures are. Everything can still operate harmoniously – until a dispute arises.”
Geale said disputes also erupt around a company’s external relationships with its bank, its customers or its suppliers.
As an example, he cited the case of an artisan gin company, which fell out badly with its wholesale distributor after previously enjoying a friendly, but informal relationship with this business. The two companies ended up suing each other.
“Something that started very well became very sour and bitter,” he said.
“When you look at the cost the parties both incurred with lawyers and accountants, if there had been a contract in place and more structure and formality, would they have had the same problems?”