Family businesses are ecosystems of complex and intersecting commercial interests and family relationships. When relationships start to breakdown, the business will inevitably be caught in the crossfire, creating both practical and legal challenges for those involved. The performance of the business could be impacted if key personnel are distracted or decision-making stalemates exist. Opportunities may be missed and a reluctance to continue to invest and take necessary risks may have long term consequences. Disputes brought into the workplace can also expose the business to employment claims. There may be loss of business and reputational damage.
So how can a family dispute be resolved to everyone’s satisfaction?
Do you have to use the courts?
In a divorce involving a business, it‘s often better to use the courts as a last, rather than a first, resort. Other than asking the courts to approve and legalise a negotiated settlement, it would be advantageous for all parties to avoid financial court proceedings which they will find are at the sharp and (often) expensive end of the dispute resolution (DR) armoury. Non-court DR is voluntary and so of course, the courts remain the fall-back position for cases where compromise is out of reach.
Although the courts respect the separate legal personality of companies, they have wide powers to direct the parties to provide information about the business. It’s likely that a joint expert will be instructed to provide an independent valuation of the business, report on sustainable income, how funds can be raised or extracted (‘liquidity’), and tax considerations. The court also has the power on divorce to sell or transfer shares and rarely has the appetite, business acumen, and in many cases, the power to make orders which maximise restructuring opportunities or ensures assets are divested in a tax efficient way. If a judge makes the final decision, then all control over outcome has been lost.
Those involved in family business divorces should access early expert family law advice from lawyers used to dealing with family business disputes and can offer the full spectrum of dispute resolution (DR) approaches to see what approach would work best for them and their business.
The universal benefits of non-court dispute resolution
Although the format of the different processes vary (more below), there are some universal benefits to selecting them over the courts:
- Speed – weeks and months, not years.
- Confidentiality – no published court reports or sensitive business discussions conducted in packed court waiting rooms.
- Cost savings – avoiding the need to prepare for court and longwinded analysis and negotiation of issues in writing.
- A creative and solution driven focus – an opportunity to brainstorm ideas together and think outside the box.
- In-meeting input from a variety of business advisers and joint experts to ensure commercial viability, efficiency in all its forms, and success of future implementation (does not apply to arbitration but the right experts can still be instructed and give evidence).
- Communication – helping family members talk again with the aim of reducing conflict at home and in the workplace, moving the relationship on to one where co-working together might be a possibility.
- Control over outcome (apart from arbitration – see more below) which can later be legalised, and dates and location of meetings to fit around business commitments.
A guide to non- court based dispute resolution approaches
Family Mediation
Family mediation ordinarily involves just the couple and a mediator who acts as a neutral facilitator to help identify and resolve issues. A series of separate face to face meetings take place with the process and agenda being driven by the parties. The mediator is only able to provide information to help understand options, so it is recommended that lawyers are instructed to advise on the periphery of the mediation process.
Lawyer assisted mediation
Similar to civil/commercial mediations which business owners may already have experience of, this usually involves both parties, their solicitors, and if instructed, their counsel, meeting for a whole or half day, in a series of separate and if appropriate, joint meetings, with the process managed by the mediator. The mediator will usually be authorised by the mediation agreement to maintain the confidentiality of discussions with each party, putting them in the unique position of being able to assess where there might be an overlap in respect of individual issues so leading to a consensus.
Collaborative law
Each party appoints a collaboratively trained lawyer. Instead of negotiating by letter, the discussions take place over a series of “four-way meetings” providing greater support (legal or otherwise) than family mediation. A participation agreement sets out the parameters of the process and willingness not to litigate through the courts. The parties and lawyers work together to reach an outcome the suits the whole family and business, not just for one person’s benefit.
Arbitration
If an outcome needs to be imposed on the parties due to intransigencies the best way forward in many cases is likely to be arbitration. This process is private judging, with the arbitrator making an arbitral award at the end of the process, whether after an oral hearing or on paper in a straightforward case or on a single issue. Hearings usually take place either by phone or in person at an agreed location (e.g. one of the solicitor’s offices). An arbitrator with business expertise can be identified reducing the risk of erroneous decisions being made.
Key actions and conclusions:
- Head off disputes at an early stage to protect the business, its employees, and mitigate disruption in all its forms.
- Speak to a family solicitor who regularly represents business people and offers all DR approaches. Whatever happens next, you’ll be properly supported.
- Court should be a last resort for the variety of reasons identified above.
- Research the DR processes further and decide which approach will best support you, your family, and business. More can be found here: https://www.divorce.co.uk/
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