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Company Directors Disagreements

Company directors disagreements. Written by John A Waller. Reviewed April 20th,2023.

Company directors disagreements may cause major issues when one wants to liquidate, and one doesn’t, and often the reason for causes of insolvency in business.

Once a fall out starts in a company, and directors fall out. Working together presents many problems. When they no longer may be managed, and issues escalate. Directors must ensure the company remains robust and protect the company’s creditors. Often though, companies head towards insolvency over the dispute.

Then it is down to the directors to resolve quickly. A problem may then exist over shareholdings. In many cases, two parties may own the company on a fifty-fifty split.

So what next?

Contact HBG Advisory to assist in the dispute and its resolution. Mediation by our team will help either retain the value in the company while trading on. It may be the company is sold to a new entity or one party steps aside. 

If either party fails to agree, then the directors may need to consider a Liquidation

Settling directors deadlocked conflict.

If a director conflict commences, and only two directors who are shareholders hold fifty per cent shares each, then they enter a deadlock. Very soon a contentious stalemate exists.

Often the effect is catastrophic on what was once a prosperous, growing company. 

Disputes centre the minds of the directors on the conflict, rather than running the company if the case exists, moving on that both sides dig in and entrench. Then what?. 

Therefore, potentially allowing operations to come to a halt. They are effectively putting at risk the viability of the company!

When a director prefers liquidation, though the other refuse?

Running as a limited company and having a 50% partner in shares may present problems over the years. Often one part of the party may wish to call it a day. However, the other party may want to continue with the business. So what can be done? The simple answer, though so often difficult to agree, is for the director to resign. However, it is fraught with many issues.

Any director resigning office in a dispute remains suspicious and aggrieved, handing their part of any control. Many out of spite or emotions prefer closure in whatever manner depending on the solvency of the company.

Excluding a company director while agreeing to purchase their shares in the company.

When a married couple owns fifty per cent shares each and decides to split and divorce, then at the divorce hearing, the court may grant a limited company divorce settlement. The remaining director then purchases the shares of the other in total. Possible only if the other side has the financial capacity to complete a purchase? Once completed, the director selling resigns office and the company ownership transfer as a whole, while continuing to trade, hopefully have sustained little or no damage.

Director disputes start possibly through a lack of communication. Other influences for an argument may be which direction each may want to go, or a married couple who have decided to split up.

Therefore, how can the directors arrive at an acceptable equitable winding up? If they fail a mutually acceptable split, then the courts beckon.

Therefore, what alternatives present themselves when a director needs to commence appointing a liquidator to liquidate voluntarily when the other does not?

Your duty as a director of a Limited Company during a Company Directors Disagreement?

Any signs of director conflicts. Quickly impact on the wellbeing of any business. Often it may take down the company, causing insolvency.

Directors generally need to comply, but especially when in conflict need to take great care.

Directors have a legal knowledge-based duty of care to:

  • Ensure the interests of the company’s creditors remain a priority over and above any other. An ongoing conflict between the company’s directors remains no concern of others. Therefore, to comply with company law and not fall foul of it. Directors are required to prioritise creditors, nor allow any action worsening their position. Failure to do so renders the directors potentially liable for debts of the company. Additionally, face being investigated for wrongful trading. If found guilty, they may have a disqualification order banning them to a maximum of fifteen from acting and managing a business.

Exceptional grounds for winding up a company in conflict?

A company shareholder wanting to leave the company may apply for a just and equitable winding-up, allowing a court to rule if liquidating the company remains the most suitable opportunity to remove any deadlock. The court will consider alternative solutions that enable the company to trade while resolving the impasse,

However, if that fails and a petition allowed, then subject to the company’s solvency, then a Members’ Voluntary Liquidation (MVL) enables the company’s assets sold, The proceeds then distributed to the company’s shareholders, while closing the company down.

However, the person wishing to continue trading as the now liquidated entity may consider a new entity utilising many former aspects of the previous company.

How do I react if in this position?

Suppose you are in that position? No matter your personal wishes, you must ensure you carry out your legal directorial obligations and responsibilities. 

Unresolved, matters will only deteriorate for the company and those directors in conflict. Every effort needs to be made to agree on a mutually agreeable conclusion to secure the company’s position.

The Insolvency Act 1986 details the legal requirements of directors responsibilities. However, view directors duties and responsibilities on this website for an easier read.

REMEMBER: Directors are required to ensure you put your company and creditors first.

Further Help with a Company Directors Disagreement

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