Resolving a dispute between partners in court

You have set up a company (SARL, SCI, SAS, SA, etc.) with one or more partners. Then the company faces structural or financial difficulties, and choices have to be made. The first misunderstandings between the partners appear, and over time they become so serious that they paralyse the life of the company.

Despite an initial failed attempt at conciliation between you and your partner, you are unable to reach an agreement. There’s only one solution left: go to court to resolve the situation.

Ask the judge to involve a third party to resolve the dispute

First and foremost, the judge will propose resolving the dispute using alternative dispute resolution (ADR) by appointing a conciliator, arbitrator or mediator.

Conciliation

Conciliation brings together the partners in conflict, who express their points of view before the conciliator. The conciliator will then propose solutions to bring everyone’s positions closer together. The partners may or may not accept the conciliator’s proposals.

Arbitration

The judge may decide to appoint an arbitrator. This is a third party whose role is to settle any dispute that may arise between the shareholders. If the parties decide to accept the decision, it is binding on them. An arbitration decision is not always a good solution in the medium term, as the dispute between the shareholders may still exist.

Mediation

Unlike conciliators, mediators do not propose solutions. Their role is to get the shareholders in dispute to sit down around a table and re-establish communication between them. More than just a conversation, mediation can lead to a new social contract between the shareholders.

In extreme deadlock situations, where communication with your partner has become impossible, you can ask the judge to appoint an ad hoc representative or a provisional administrator. It is essential to be accompanied by a business lawyer in this type of situation to draw up the application that will define the nature, scope and duration of the person who will provisionally administer the company.

Legal proceedings open to partners

In situations where there is no longer any dialogue between the shareholders, they may, by virtue of their status, institute legal proceedings to carry out a management review or remove a director from office.

Management assessment

The partners or shareholders have a right to inspect the management of the company, a right that is strengthened for minority shareholders, who may go so far as to ask the court to appoint a management expert.

A management report is not a full audit of the company, or even an expert appraisal of decisions taken at a shareholders’ general meeting. It involves an examination of specific transactions, such as regulated agreements signed between shareholders, directors and the company.

This right is only available to certain shareholders in commercial companies. For example, shareholders or groups of shareholders of a public limited company representing at least 5% of the share capital (article L.225-231 of the Commercial Code). Beforehand, shareholders must put written questions to the company’s directors and officers. If they fail to receive a reply within one month, they may apply to the Court for an interim injunction to appoint an expert.

OUR ADVICE : it is vital at this stage to consult a lawyer, who will help you to determine precisely the scope of the management actions for which you wish to request an expert opinion, as well as the serious grounds for bringing such an action before the President of the Commercial Court.

Dismissal of the company director

In the event of disagreement between the partners, one of whom is a company director and has a blocking minority, it is always possible for the partners to ask the judge to remove the director from office.

Dissolution of the company due to disagreement between partners

In extreme cases, where the company is completely paralysed and its operation is undermined, article 1844-7 of the French Civil Code allows partners to apply to the court for early dissolution of the company for just cause.

NOTE : the partner at the root of the disagreement cannot apply to the court to have the company dissolved.

Avoid resolving shareholder disputes before the courts

Legal proceedings can be long and costly. Simpler solutions can be anticipated.

When setting up a company, it is important to sit down with your lawyer and discuss all the possible scenarios, and consider all the legal consequences.

You can insert various clauses in your articles of association and partnership agreement:

• Financial clauses, as the financing of the company is often a bone of contention between shareholders;
• Decision-making clauses
• Exclusion clauses;
• Non-competition clauses;
• clauses requiring prior recourse to mediation or arbitration to resolve disputes between shareholders, etc.

Always bear in mind, before initiating legal proceedings, that the judge will try to protect the company’s interests at the expense of those of its partners.

GOLDWIN’s lawyers have therefore developed particularly reactive and creative expertise in resolving disputes between partners, in particular by favouring the pre-litigation route.