Starting a business with family members or friends may seem like a good idea. But what happens when the gloss wears off? As shareholders with a financial interest, the fall out can be costly. Caroline Callegari, Associate Principal and Head of our Disputes & Litigation team explains.

Introduction

Too often, we hear the phrase, “but it was all good until” in the context of disputes between shareholders of a private and usually friend/family-owned company. It usually comes after we ask whether or not there is a Shareholders Agreement in place that can be referred to when providing advice on the dispute. More often than not, the answer is no! The shareholders started out as friends and didn’t think they would need one.

Unfortunately, this is a common mistake and usually leads to angst and arguments when the parties find themselves no longer agreeing on how the company should be run or how to resolve the dispute.

Advantages of a Shareholders Agreement

Our advice to customers when starting a new business is to have a Shareholders Agreement in place from the outset. It is much easier to set the ground rules at the beginning. In this regard, Sharrock Pitman Legal’s commercial law team headed, by an Accredited Specialist in Commercial Law, is here to help. If you are starting a new venture and want some protection in case things go “pear shaped”, contact our commercial lawyers for advice on a Shareholders Agreement.

That being said, however, even with a detailed Shareholders Agreement in place, parties can still find themselves in dispute and, in the worst case scenario, in Court.

In most cases where there is a shareholder’s dispute it can be resolved through effective communication and discussions beforehand involving lawyers to help highlight: the issues; the duties of each member of the Company; and the risks to the business of prolonged disagreement. Our Disputes & Litigation team has practical experience in guiding you through the dispute and helping you find solutions that will result in you and the other shareholders getting things back in order and everyone again working towards the same goal.

When a dispute cannot be resolved

Sometimes, however, the dispute cannot be resolved, or the actions of one party are just so serious and contrary to your interests as a shareholder and the company as a whole, that Court proceedings cannot be avoided.

Court proceedings can take various forms but is usually in the form of a Shareholder’s Oppression Action under Section 232 of the Corporations Act 2001 (C’th). This section provides as follows:

The Court may make an order under section 233 if:

a) the conduct of a company's affairs; or

b) an actual or proposed act or omission by or on behalf of a company; or

c) a resolution, or a proposed resolution, of members or a class of members of a company;

is either:

d) contrary to the interests of the members as a whole; or

e) oppressive to, unfairly prejudicial to, or unfairly discriminatory against, a member or members whether in that capacity or in any other capacity.

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The remedies available are wide and varied. But usually, one or more shareholders is asking the Court to find that a certain action shall take place or be stopped, or are seeking an order that they should no longer be involved in the affairs of the company and that they should sell their shares at an appropriate amount to the remaining shareholders as a means of resolving the dispute.

So, what is oppressive conduct?

It is not a simple disagreement on how to run the company. The conduct has to be more serious than that. It must be conduct which is unjust or commercially unfair, such that it prejudices or causes detriment to a minority shareholder.

Oppressive conduct can include:

Exclusion from management
Refusal to provide information and documentation
Making decisions that favour someone personally and which is unfairly prejudicial to the other shareholders, and can include diverting business to a related entity
Failing to take action
Oppressive conduct at board meetings or the refusal to have the same
One person managing the affairs of the company without proper oversight and decision making
Misuse of company funds
Continuous deadlocks resulting in the inability to advance the interests of the company
Improper dealings with shares or unfair transfers of shares or issuing of new shares
Breach of director duties

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It is a fairly high bar to prove oppressive conduct, as it ultimately involves the Court balancing the prejudice or detriment suffered by the shareholder against the benefit provided to the company as a whole.

Oppression proceedings should be seen as a means of last resort. Not only can they be difficult to prove, but they can be costly and time consuming and usually result in the breakdown of what may have originally been a close friendship or family connection.

How Sharrock Pitman Legal can help

If you are involved in a business and find yourself saying “but it was all good until” – contact a member of our litigation team for guidance and assistance. From our experience, the sooner steps can be taken to get things back on track, the better for all involved.

Please do not hesitate to contact us on 1300 205 506 or email litigation@sharrockpitman.com.au.

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The information contained in this article is intended to be of a general nature only and should not be relied upon as legal advice. Any legal matters should be discussed specifically with one of our lawyers.

Liability limited by a scheme approved under Professional Standards Legislation

Written by a member of our Legal Team

Caroline Callegari

For further information contact

Caroline Callegari

Caroline Callegari is an Associate Principal and leads our Disputes & Litigation team. She has an advisory and advocacy practice in the following areas: Commercial Litigation, corporate and personal disputes, debt recovery and, insolvency and bankruptcy matters. Caroline can be contacted on (03) 8561 3324.

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Starting a business with family members or friends may seem like a good idea. But what happens when the gloss wears off? As shareholders with a financial interest, the fall out can be costly. Caroline Callegari, Associate Principal and Head of our Disputes & Litigation team explains.

However, in this article we will set out the factors that influence how long it will take to obtain a Grant of Probate and to administer an estate in Victoria.

The basics

First things first: what is a Grant of Probate? A Grant of Probate is effectively a document issued by the Supreme Court of Victoria which formally authorises an executor to manage the estate of a deceased person in accordance with their Will. Without Probate, the asset holders (say a bank or share registry) cannot be satisfied as who has the correct authority to receive the deceased's assets and may refuse to pay out.

Sometimes, for smaller estates or if assets are mostly jointly owned with a surviving spouse, asset holders might agree to release payment without requiring a Grant of Probate. This is usually on the basis that the person who receives payment promises to repay (or Indemnify) the asset holder if it turns out they paid to the wrong person.

If there is no Will, then you cannot obtain a Grant of Probate. Instead you obtain Letters of Administration. This is effectively the same, in terms of authorising someone to administer the estate, and would usually be obtained by the person who is the closest next-of-kin to the deceased.

“A Grant of Probate is effectively a document issued by the Supreme Court of Victoria which formally authorises an executor to manage the estate of a deceased person in accordance with their Will.”

Timeframes for Probate in Victoria

In order to obtain a Grant of Probate, the Supreme Court needs to be given information about the assets and liabilities of the estate, the deceased person, the witnesses to the Will, the executors and the Will itself. An advertisement of your intention to apply for Probate must also be published on the Supreme Court website for at least 14 days prior to any application being lodged.

Often, making enquires to obtain all the necessary information can take a number of weeks. Also, you will need the Death Certificate for the application for Grant of Probate and possibly for making proper enquires regarding the assets and liabilities. Waiting for the Death Certificate to issue can therefore add a few more weeks to the process. Overall, if you have your application for Grant of Probate lodged within 1 to 2 months from the date of death, you are making timely progress.

The Court itself usually does not take long to process the application (maybe another 1 to 2 weeks) and this is completed using the electronic Supreme Court filing system. This means you do not have to go to a Court hearing. The timeframe for processing applications for Letters of Administration is even less, given that there is no Will document for the Court to consider. There is also a general discretion for the Court to raise a 'Requisition' asking for more information before they review the application - this can sometimes delay matters.

“Overall, if you have your application for Grant of Probate lodged within 1 to 2 months from the date of death, you are making timely progress.”

So, here we are a few months after death and you finally have a Grant of Probate or Letters of Administration. It is important to remember that this is the start of the estate administration and not the end. For a very simple estate, you might only need a further month or so to cash the assets and pay them to the correct beneficiaries. However, it can often be more complex than that. Factors that determine the timeframe to administer the estate include:-

Some assets will take time to cash or transfer. For example, if selling a property, final settlement might be 60/90/120 days from the day of sale.
There is a 6 month period for challenges to be brought against the estate and executors must wait until this period expires before distributing the estate, if there is any risk that a disgruntled family member might come forward.
There might need to be final tax returns for the deceased or for the estate. Failing to wait for the ATO to process these could leave the executor personally liable for a tax bill.

You might need to advertise for creditors to come forward and wait for a period of months while this advertising timeframe expires. This protects the executor if they are unsure of all of the deceased's financial dealings and creditors.
It might not always be a good time to immediately cash estate assets. For example, the shares just took a nose-dive, do you still sell regardless of available price?

There is a general rule that executors have an 'executor's year' to complete the estate administration. This means that you should be aiming to have the estate finalised and distributed within 12 months from the date of death.

Liability limited by a scheme approved under Professional Standards Legislation.

Need help with Probate?

Our expert legal team is ready to take your call!

Mitchell is the Managing Principal of Sharrock Pitman Legal. He is an Accredited Specialist in Commercial Law (accredited by the Law Institute of Victoria). He also deals with areas of Employment Law, Wills & Estate Planning and Probate and can answer all your questions related to probate.

For further information, contact Mitchell on his direct line:

DIRECT LINE:

(03) 8561 3318

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Going into business with family and friends? What could possibly go wrong!

Starting a business with family members or friends may seem like a good idea. But what happens when the gloss wears off? As shareholders with a financial interest, the fall out can be costly. Caroline Callegari, Associate Principal and Head of our Disputes & Litigation team explains.

Introduction

Advantages of a Shareholders Agreement

When a dispute cannot be resolved

So, what is oppressive conduct?