Dispute Resolution – Overview
We helped a shareholder recover all the investment that she made in a franchise business when she fell out with the other shareholder.
Dispute Resolution – Context and Challenge
Our client had set up a company with another individual to operate as a franchisee in a food business.
Our client invested a substantial amount in the business which had come from her and her family. However, in a short space of time had fallen out with the other shareholder who had effectively bullied her into a weak position. On the face of it, our client and the other shareholder had agreed to alter the initial arrangements agreed between them to put the other shareholder in a more advantageous position with the equity split. Our client was not on the bank mandate and the other shareholder, in a position to control the bank account, was paying dividends rather than salary to her advantage. Other issues were in play as well.
Our client had no wish to try and patch up the relationship with the other shareholder. Instead, she wanted her investment back and to leave the company.
Dispute Resolution – Process and Insight
We spent time listening to our client to understand what had gone on. We also reviewed all the correspondence that had passed between the parties. The arrangements between the pair were loose and made up of what had been agreed over emails.
We also reviewed the franchise agreement between our client’s business and the franchisor to understand the liability position and to see what personal guarantees were in place – to assess our client’s liability exposure to enable us to come up with a strategy to deal with the other shareholder.
Dispute Resolution – Solution
Once the other shareholder received correspondence from us she immediately stopped firing out unhinged correspondence to our client. So, our client engaging lawyers to make the other shareholder “sit up” and stop bullying her had the desired effect.
We ran two main legal arguments – that our client’s purported agreement to vary the equity split was void through a lack of “consideration” and that, even if this point was wrong, then in any event the agreement was void because it had been made under duress.
We also ran a strategy to alert the franchisor which carried some risk but had the desired effect of forcing the other shareholder to do the right thing and quickly settle the dispute with our client. Fortunately, the franchisor and their lawyers were very sensible and easy to deal with.
Dispute Resolution – Result
We recovered all the investment that our client had put into the business and our client was able to exit the business relatively unscathed. The business has made ongoing losses since our client left so she was fortunate to leave when she did.
