How to Resolve a Business Partner Dispute Without Going to Court
Whatever the shared vision, disagreements regarding operations, money, or strategy can easily wreck a business relationship. When conflicts arise, litigation may seem like the straightforward choice, but bringing a lawsuit against a partner can be detrimental to both parties’ businesses. Skipping litigation will save you money and time while keeping your business matters confidential. Here are three ways that you can resolve a business conflict without litigation.
1. Check Your Internal Rules First
In any business dispute, the first thing to look at is your internal business governance. A well-drafted partnership or shareholders’ agreement is a good guideline. It contains specific provisions on dispute resolution that guide partners on what to do when there is a deadlock.
The clauses generally have cooling-off periods, written notice, or a mandatory mediation provision before further steps are taken. You might find yourself at a disadvantage if you ignore them.
It is also important to check the company’s constitution and any rules lodged with the Australian Securities and Investment Commission (ASIC). These documents often have specific contractual escalation processes.
For example, they may require partners to attempt an internal discussion for a set period of days before involving a third party. Following these internal procedures demonstrates good faith and might help resolve a problem without outside assistance.
2. Connect with Independent Dispute Resolution Professionals
In any commercial dispute, call in neutral experts. A mediator through an organization such as the Australian Dispute Centre (ADC) can assist both parties in settling out of court. Having a commercial lawyer experienced in mediation can also lead to early resolution.
Mediation is private, quick, and maintains working relationships. This process also precludes a judge from imposing a winner. If the valuation or performance is the subject of a technical dispute, then an independent expert determination can be obtained within days by appointing an industry expert to provide a binding or advisory determination.
State Small Business Commissioners offer low-cost or even free mediation services that can work well for small and medium businesses. Commissioners in New South Wales, Victoria, and other states offer a structured forum that is specifically intended to help prevent local businesses from entering the formal court system.
A neutral case manager is usually provided to help arrange sessions and explain issues. The use of these resources is a sign of a willingness to resolve, and can save thousands of dollars in legal fees.
3. Discuss a Commercial Separation and Exit Strategy
If cooperation fails altogether, the focus needs to be on a clean corporate divorce. Most partnership agreements address deadlocks with a well-thought-out buyout provision, such as a “Russian roulette” or “Texas shoot-out” buyout.
These provisions enable one partner to submit a sealed bid to purchase the other partner’s shares at a specific price, thereby forcing a resolution. If not, you might have to discuss a voluntary buyout with an independent valuation.
Once a buyout occurs, both partners will have to negotiate how the assets, liabilities, intellectual, and physical property will be divided. Thus, you may agree for one of the partners to take the client list. Then have another take the equipment.
After that, your lawyer will then draft a deed of release for a clean separation. This document is legally binding to ensure that none of the parties involved can bring any contract-related lawsuits in the future.
Endnote
Handling partnership conflict is usually best done out of court. Achieving this requires you to check your company rules and enlist the help of outside experts. In the absence of an agreement, you can then negotiate a clear exit that protects your business value and reputation.
