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Food for thought

Co-Director Dispute and No Agreement

By | Food for thought, news, Problem Solved

Quite regularly, a company will end up in a situation where directors no longer see eye to eye and reach a level of “deadlock”.

And unfortunately, with lots of companies not having shareholders agreements, it can be difficult to know where to go from there.

Generally speaking, if there’s a deadlock and no shareholders agreement, the best outcome is usually a negotiated settlement which avoids expensive litigation.

Both of the parties can be encouraged by the Solicitors to make a hard and positive effort to come up with pragmatic solutions, perhaps with the help of a mediator through Alternative Dispute Resolution, to avoid ending up in court.

If a settlement cannot be reached there are several options, including winding-up, a buyout by one side or the other, or a solvent liquidation.

Who can help you reach a settlement?

Well firstly, a solicitor…

In my opinion, it’s vital you instruct a solicitor to assist you negotiate a settlement – you need to understand your legal entitlements and alternatives, so you can negotiate from a position of strength.

Also, there are various ways a party’s minority or majority shareholding can be valued and it’s vital to know what your shares are worth before you commence any negotiations.

And secondly, a mediator…

As stated above, employing the services of a mediator is a good alternative to all-out war.

Mediation is a process where a trained mediator, as a third party, tries to knock the parties’ heads together (and sometimes knocks their Solicitors’ head together as well!) to explore a mutual resolution to the dispute.

We can arrange a mediation with a skilled mediator in this area at very short notice, so if you are ever in need, please get in touch.

Mediation often ends up with binding legal agreements, and in our experience, if both parties are competently advised, and know their real weaknesses and strengths, mediation is often successful.

What if all negotiation fails and mediation fares no better?

 You’re then in the realm of litigation:

Your litigation options include:

  1. Claim or injunction for a breach of another Director’s statutory duties;
  2. A derivative action by minority shareholder (see blog post 3 weeks ago);
  3. An unfair prejudice petition (we will deal with this in more detail next week!).

The court has significant discretions in making decisions in all of these areas and it is vital to take competent advice from Solicitors who understand how judges approach these matters before starting.

John

When shareholders cannot agree – Texas Shootout or Russian Roulette?

By | Food for thought, news, Problem Solved

As promised, this week we’re focusing on what happens when there’s an irresolvable deadlock between a company’s shareholders who have an agreement with one of these provisions.

When shareholders simply cannot agree, and the conflict is deemed irresolvable, one of the parties may serve a notice offering to purchase or sell at a specified price.

For example, A and B each hold 50 shares in Comp Ltd. They fall out.

Russian Roulette

A serves notice on B offering to transfer all A’s shares in the company to B at a price specified by A.

B must accept A’s offer and buy A’s shares at the stated price or must sell all his shares to A at the same price per share.

Texas Shootout

Also called a Mexican shoot out. It is a variation of a Russian roulette provision where typically A and B submit sealed bids to an “auctioneer” and the party who makes the higher bid buys the company at that price.

Both Russian Roulette and Texas Shootout only really operate fairly if the parties are of approximately equal financial strength, the shares of the other are affordable, and neither has a unique role in the company.

If Russian Roulette or Texas Shootout are not going to be appropriate mechanisms, a shareholders agreement can also provide for a valuation of the shares and a sale to the remaining shareholder(s), or to the outside world.

But what if A and B don’t have a shareholders agreement? We’ll explore that next week.

Lord Hain – A Speech Too Far. A Cato Solicitors Behind the News Special

By | Criminal, Food for thought, news

If you cast your mind back a couple of weeks, you’ll remember Lord Hain exercising his “parliamentary privilege” to name a businessman who’d been granted an injunction, preventing the Telegraph from publishing a story about him.

And, to be honest, Lord Hain’s words were less like a speech, and more like an elephant blundering about in the rose garden of our constitution.

We give our Judges, not politically appointed Lords, the power to make these decisions.

And, lest we forget, these Judges’ decisions are made not just after hearing all the details of the case argued, but also after many years of study and discipline in law, striving to make fair, legally sound decisions.

Imagine I have told you I am going to publish an article which falsely accuses you of being a thief.

I put it around everywhere that an article about a thief is going to be published soon and many people are looking forward to reading it.

They do not know you are my victim. You go to court to stop me.

At the first Hearing, the Judge decides it is not clear whether what I have written is justified and grants you an injunction until a full decision about the case has been made.

Parliamentary Privileges

Is it fair to you if a Lord or an MP uses Parliamentary Privilege to name you?

There has been no in-depth comment from the media about whether Lord Hain gets away with this playing the supposed “trump card” of “Parliamentary Privilege.” (Who would think the BBC has a ££multi-million news organisation to look into these matters?)

Let’s look at things a little more closely…

“Parliamentary Privilege” is based on the 1688 Bill of Rights which says:

The Freedome of Speech and Debates or Proceedings in Parlyament ought not to be impeached or questioned in any Court or Place out of Parlyament.

Note it says “ought not”, not “shall not”, so not a complete exemption to say whatever you want.

Is Hain as above the Law as he thinks?

Firstly: contempt of court.

There are many different types of contempt of court. They are sometimes grouped together into the following two main categories:

  1. Contempt by disobedience. For example, disobeying or breaching a court order or judgment, or breaking an undertaking given to the court.
  2. Contempt by interference. For example, disrupting court proceedings or the court process itself (known as “contempt in the face of the court”) and interference with the due administration of justice.

An intentional act in breach of a court injunction by one of the parties to those proceedings who is bound by that order constitutes a civil contempt, which is punishable by the court.

In a case called Attorney General v Times Newspapers Ltd and another in 1992 the Court distinguished that type of breach from a prohibited act by a third party, who may be a stranger to the litigation.

Criminal Contempt

If somebody who is not involved in the proceedings breaches an order they may be acting with criminal contempt because that act constitutes a wilful interference with the administration of justice.

I am not aware of any law which states Parliamentary Privilege definitely gives immunity from criminal contempt.

Secondly: the House’s own Rules.

You can find the relevant Rule here: https://www.parliament.uk/documents/publications-records/House-of-Lords-Publications/Rules-guides-for-business/Companion-to-standing-orders/Companion-to-Standing-Order-2010.pdf

and it says (my emphasis):

The privilege of freedom of speech in Parliament places a corresponding duty on members to use the freedom responsibly. This is the basis of the sub judice rule. Under the rule both Houses abstain from discussing the merits of disputes about to be tried and decided in the courts of law

In this case proceedings were before the court and interfering with its decision to grant an injunction without the permission of Speaker is a breach of the Rules.

Hopefully Hain’s conduct will be referred to the House and the Court that made the order he breached, as a criminal contempt, and to the Attorney General.

We enjoy living under the rule of law – no person should abrogate to themselves the power to make decisions which we have agreed lie with the Judges. Hain’s conduct is not righteous; in reality it tramples on the constitution and thus on our hard-won freedoms and privileges.

What do you think about it all?

John

Shareholder agreements – the often unknown effects

By | Food for thought, news

As my father once told me as I was growing up, “strong fences make good neighbours.” Even if you lived in the house next door to your brother or sister, you would probably want a fence between you to mark the boundary. And in a company context, a shareholder agreement performs much of the same function.

Many boardroom disputes arise from one party or another believing that they are putting more time and effort into the business.

A clear written understanding of what is expected from each director/shareholder, together with an ADR resolution framework, can help to resolve these problems – in other words, a “shareholders agreement”.

Here are just some of the things worth including in your shareholder agreement:

  1. Regulating investment
    Quite often one person puts in more money than another. Failure to agree expectations regarding investment can be fatal to a company’s long-term future.
  2. Pre-emption rights
    A shareholder agreement can provide that shareholders have to offer their shares to each other first and prevent people ending up working with somebody they do not know.
  3. Exit
    Shareholders agreement can clarify the vision everyone has for the company and build a consensus, but also provide for an exit procedure which does not involve litigation lawyers 🙁
  4. Deadlock
    If a majority doesn’t exist – e.g. a company run by two people on a 50-50 basis – then deadlock provision in a shareholder agreement can prevent catastrophe.
  5. Deadlock provisions
    Texas Shootout and Russian Roulette, which we’ll look at next week.

Disagreements and personal differences

By | Food for thought, news, Problem Solved

A good company board is one of the keys to a well-run business, and if it’s doing its job, it should identify key issues that need to be resolved for development to take place, generate a constant flow of ideas and engage in regulated decision making.

That all sounds beautiful, positive and progressive, but as we all know, it doesn’t always turn out that way.

The personal dynamism that the board relies upon can turn into disagreements which, if left to fester, can crystallise into acrimonious disputes.

Pushing disagreements under the carpet

If left underneath the surface these disagreements can undermine the smooth functioning of the board and thus the company’s performance and, ultimately, could threaten the company.

In the infinitely variable play of human conduct, disagreements can arise over strategy, financing of the company and remuneration, conflicts between Directors’ interest in the company and outside interests.

Most of these conflicts are underlined by:-

  1. Lack of a shareholders agreement;
  2. Personal differences.

So, what can you do about these conflicts?

Well, as they say, prevention is better than cure, so it would be my suggestion to work extremely hard to create a culture that minimises the two things that cause most conflicts.

Here are just a few ways to do that:

  1. Clarifying authority, roles and responsibilities;
  2. Establishing regular board meetings with an orderly process;
  3. Meeting outside the business – combining meetings with team activities;
  4. Ensuring the flow of full information to all board members;
  5. The Chairman being wise enough to draw out disputes between parties and drawing the poison (chair needs to be able to encourage Directors to reach a consensus during this process);
  6. Incorporating Alternative Dispute Resolution into the company’s culture.

Our next blog will look at how having a shareholders agreement, although it sounds dull and legalistic, can be an enormous help in preventing and resolving disputes.

John

Sir Cliff – privacy invaded?

By | Criminal, Food for thought, news

It’s unlikely that you missed the High Court judgment on Sir Cliff Richard’s case vs the BBC?

It was definitely an intriguing one. But even more intriguing was the BBC’s coverage of it.

Do take a read of the BBC’s summary here where you will find this line:

“The BBC said journalists acted in good faith and it is considering an appeal.”

Good faith. Covers all manner of sins, doesn’t it?

There are a couple of key Articles that come into play here:

  1. Article 8 of the ECHR:

“Everyone has the right to respect for his private and family life, his home and his correspondence.”

  1. Article 10 of the ECHR:

“Everyone has the right to freedom of expression.”

Where these two rights conflict (as in Sir Cliff’s case), the Court has to perform a difficult balancing exercise.

In this case, in making the decision of the Court, the Judge balanced the scales more heavily onto Sir Cliff’s side because of the following reasons:

  1. The consequence of the disclosure to him;
  2. The public interest in identifying a person who is only being investigated is not strong;
  3. The degree of drama and sensationalism added to the report by helicopter views of the inside of Sir Cliff’s home by the BBC;
  4. The BBC, through its journalist, Mr. Johnson, did not get the information about the search in a straightforward manner.

That last point is key. Did Mr Johnson’s behaviour constitute acting in ‘good faith’? Mr Justice Mann clearly didn’t think so.

Here are some points that Mr Justice Mann brought up in his judgment that the BBC unsurprisingly omitted from their coverage:

  1. At a meeting on the 15 July 2014 between the Police and the BBC Mr. Johnson exaggerated his knowledge about the investigation of Sir Cliff.
  2. When Mr Johnson was contacted by his source Mr Johnson was probably aware that the original source of the information was Operation Yewtree, or possibly the Metropolitan Police. His contact was someone in a police force, or someone associated with a police force. He was not being informed officially, and had no reason to suppose that his tip-off was sanctioned by anyone in authority.
  3. When Mr Johnson contacted Miss Goodwin he mentioned his source in general terms and said it was, or the information came from, Operation Yewtree, and he also gave further details which reasonably led her to suppose he had a reasonable amount of detail.
  4. Miss Goodwin and Supt Fenwick went into a meeting with Mr Johnson concerned that he already had a story that he could and might well publish, and retained that concern in and thoughout the meeting, reinforced by what Mr Johnson said.

In order to prevent that they confirmed and offered information, and, crucially, offered to alert him to the forthcoming search. They did not volunteer anything. Had it not been for their concern (or fear) of publication they would not have offered him anything, or at least nothing worthwhile, and would not have provided details of the search.

As for ‘good faith’? You can make your own mind up, but it seems odd that a supposedly impartial broadcasting organisation chose to gloss over the high number of implicit criticisms that Mr Justice Mann made throughout his judgment.

You can read the full judgment here:

Do you have a view on the case?

Ben Stokes Verdict

By | Criminal, Food for thought, news

No doubt you were aware of the Ben Stokes trial last week, with the England cricketer eventually being found “not guilty” of affray.

The question is: was the jury right to acquit him?

Here are the four main decisions they had to make:

  1. Did he use threats and violence to another person?
  2. Did he believe that it was necessary violence to defend himself or another?
  3. Was the force he used reasonable in the circumstances?
  4. Was his conduct likely to cause “a person of reasonable firmness present at the scene to fear for his personal safety?”

It is that final line that a significant proportion of the “affray” charge hangs on, but another important question is why the CPS did not charge Mr Stokes with assault.

We don’t know the answer to this question, but it seems likely that had that charge been brought from the very beginning, there could well have been a very different outcome to this case.

All we know is that the barrister advising the CPS at the beginning of the case did not consider an assault charge as appropriate, and unless we see the evidence and papers she considered, we do not know why.

What we DO know is that the barrister who brought the case in front of the court did apply to amend the indictment to add assault charges, only to be told it was too late by the Judge.

When the CPS were questioned on the subject, they gave an answer that gave very little away:

“We selected the charge of affray at the outset in accordance with the code for crown prosecutors. Upon further review Upon further review we considered that additional assault charges would also be appropriate. The Judge decided not to permit us to add these further charges. The original charge of affray adequately reflected the criminality of the case and we proceeded on that.”

As I said – giving very little away.

We can only speculate as to what the actual truth behind the failure to bring an assault charge is, but maybe a more honest answer might have been:

“We did not select assault because we forgot to tell the first barrister about the video tapes shown on the TV so she didn’t have the full facts”

(I make no allegation because we do not know what the reason was.)

In addition, there has also been a lot of questioning around why Stokes’ teammate Alex Hales wasn’t prosecuted, despite video footage seemingly showing him kicking somebody.

The CPS gave no explanation for this and the police gave another political type of statement which, again, tells us nothing:

“Early investigative advice was sought from the CPS in relation to Alex Hales’s involvement and a decision was made at a senior level to take no further action against him”

Again, I make no allegation, as we don’t truly know, but…

How do you feel about the fact that these organisations (the police and the CPS) that WE fund are simply not prepared to give us the facts when things go wrong?

In this case, it just feels like everyone knows that there’s something not quite right, but we’re not allowed to really question it!

John

Wildly Astray Intuition

By | Food for thought, news

I’m sure like me you were incredibly heartened by the Thai Cave rescue. It was a horrendous situation, but the bravery of the divers must be commended.

However, I have seen a few people describing the exercise as a ‘miracle’.

I have little doubt that the Thai government relied heavily on weather experts and flood hazard assessments carefully worked out to make a probabilistic risk assessment regarding the boys’ rescue.

All of us possess a super computer – it’s a fast, intuitive mode of thinking. It feels comfortable because it renders decision making fast, easy, intuitive.

In our ordinary lives it works well.

If we met a group of scientists trying to work out how to get a group of young boys out of a flooded cave 2 ½ miles under the surface of the world, we might not expect them to use their “intuition”.

Intuition reliably goes wildly astray when dealing with complexity and uncertainty.

Some solicitors (like us) – with some awareness of how the mind works, and its frailties – use a technique called “decision analysis” as a slow logical check on intuitive decision making; just like scientists check their intuitive decision with tried and trusted mathematical models and techniques.

Decision analysis is a tool used to value the multiple financial outcomes possible in litigation by looking at all of the possibilities, attempting to give an accurate judgment on the possible outcomes (what lawyers do anyway) to translate the client’s expectations into realistic probabilities.

It has to be admitted, that the assignment of a probability (in terms of a number) to a possible future event presupposes a frequency of similar events in the past which given an indication of their probability, and a lawyer is unable to work with those types of statistical models.

We work with precedent and evidence as applied to the facts to try and obtain the same result.

Here’s an example if you want to dig further without getting bogged down in legal jargon. It’s not strictly a legal video, but illustrates the point well:

https://www.youtube.com/watch?v=7OoKJHvsUbo

We normally draw up a decision tree by hand on intuitive modelling to start with and then begin to refine it.

We can then factor into it the facts we can prove, the facts which are doubtful, and the rule of law that applies in each scenario and thus build up a comprehensive picture for the client.

Costs recovery in law is only about 70% on a very good day. It is often unlikely that a client’s financial expectations will be met in a court of law and it is good for them to have an overview of outcomes based on agreed probabilities before they become committed.

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