Disputes between directors are inevitable in any business. Different perspectives and strong opinions can lead to better decision-making, provided those differences are ultimately resolved. The danger arises when disagreements escalate to the point where the board cannot function and critical decisions are delayed or abandoned. This “deadlock” can seriously damage the company’s operations, profitability, and reputation.

When a deadlock becomes entrenched, the business can grind to a halt. In such cases, the law offers an extreme remedy: a “just and equitable” winding-up of the company, even if it is financially sound. This allows a court-appointed liquidator to take over, effectively ending the current shareholders’ control. While sometimes necessary, this step is disruptive, costly, and often avoidable with early intervention.

Why Deadlocks Happen
Deadlocks can arise for many reasons, including:

• Personal conflicts spilling into business affairs
• Disputes over strategy, spending, or management roles
• Unequal or unclear division of responsibilities
• Shareholder agreements that lack effective dispute resolution mechanisms

In family-owned businesses, personal relationships can make these disputes even more difficult to resolve. Loss of trust or communication breakdown between directors can quickly turn a successful venture into a stalemate.

The Legal Risk – Losing Control of the Company
The Companies Act empowers a court to wind up a solvent company if:

• The directors are deadlocked and shareholders cannot resolve it, causing harm to the company or preventing it from benefiting all shareholders
• Shareholders themselves are deadlocked in voting power and fail to replace directors over time
• It is “just and equitable” to do so, giving courts flexibility to act where relationships have irretrievably broken down

Once a winding-up order is granted, the company’s affairs are taken over by a liquidator, and the shareholders lose control of its management.

How to Prevent a Deadlock
Directors can reduce the risk of a deadlock and protect shareholder value by:

• Ensuring shareholder agreements clearly set out dispute resolution mechanisms, buy-out options, and voting rights
• Holding regular, minuted board meetings to maintain governance transparency
• Separating personal relationships from business decision-making
• Engaging a neutral mediator early when disputes emerge
• Seeking legal advice at the first signs of an irreparable breakdown

Why Early Legal Advice Matters
Engaging a commercial attorney before conflicts escalate can help directors explore alternatives, such as mediation, negotiated buy-outs, or restructuring that protect both the business and shareholder value. Waiting until the point of no return can leave liquidation as the only option, with potentially severe financial and reputational consequences.

The Bottom Line
A profitable, solvent business can still be brought to an end if its directors cannot work together. Proactive governance, well-drafted agreements, and early legal intervention are the best defences against deadlocks that could cost you control of your company.