Agricultural disputes are common. Chris Adams, partner and expert dispute resolution solicitor at Nelsons, discusses the consequences of such disagreements and how farms can best prepare to reduce the effects they can have on the business.
It is an unfortunate fact of life that all businesses suffer internal difficulties at some point in their lifetime – and farms are not immune to this.
In fact, disputes can be made more difficult due to home and work often being so interrelated with agricultural businesses.
When it comes to farms, it is not uncommon for a patriarch to run a particularly effective business, and then feel obliged to involve members of the family out of loyalty rather than commercial ability.
This can cause many difficulties and resentments and have an adverse impact on both the business and family relationships.
It is highly recommended that either shareholder or partnership agreements are put in place to govern the relationship between the individuals involved in the running of a farming business.
These are of considerable help as their terms can be enforced through the courts like any other contract.
However, if there is no documentation, the parties are left in the hands of the law more generally.
When a director is engaged in activities that are in breach of their obligations and duties to the company or the other people concerned with it, action can be taken against them.
All partners and directors can be prevented from taking certain actions by court injunctions, which can be obtained urgently in certain circumstances.
These are orders that require them to desist from acting in a particular way until the final case is heard or as part of a final outcome regulating future behaviour.
If financial loss is suffered as a result of the activities of a rogue director or partner, a combination of statute and common law will allow victims of their actions to seek damages against them.
Where money has gone missing or been misapplied, the court will allow a victim of such actions to trace the missing funds into whichever new assets have been acquired with the money.
Another consequence of a dispute, and sometimes the cause of that disagreement, is board deadlock, which can paralyse a business. If decision-making is not possible, the business will be unable to operate.
In the absence of appropriate documentation governing the relationships, the courts can assist.
Sometimes, the solution will be to order one party to buy the other out but ultimately, if rarely, the court can order that company be wound up or a partnership be dissolved.
The courts recognise the need to balance entrepreneurial freedom with oversight but, where necessary, and especially where there has been wrongdoing, they will not hesitate to get involved.
Disputes can be hostile and engulfing and, if they are not properly managed, can develop into significant problems, such as a company’s demise.
However, even if the issue does not lead to the worst possible outcome, it still diverts attention away from day-to-day operations and tests relationships and an organisation’s core strength.
The key is knowing how to handle a dispute, which is partly about stopping it from escalating by resolving the problem at the earliest possible stage, negotiating deals and mediating arguments. Court action should be a last resort.
1) Prepare at the beginning
2) Ensure company’s ’Articles of Association’ deed work for your business and keep them updated
3) Do not ignore the problem