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You’ve fallen out with your business partner; what do you need to do?

Finding another way to resolving a dispute, rather than getting embroiled in expensive court proceedings is clearly what anyone in this position must surely want. In recent years the focus has increasingly been on business mediation, with ACAS and Citizens Advice Bureaux leading the charge together with an increasing number of private sector ‘Alternative Dispute Resolution’ companies.

Even ACAS, who actually have ‘arbitration’ in their name, are now suggesting mediation as the first choice and for a very good reason. Mediation differs from litigation and arbitration in many respects, but most critically any solution is agreed by the two parties to the dispute and not by a judge. A judge led decision means that the parties involved have absolutely no control over that decision and are bound by it.

Mediation always involves a degree of compromise from both sides, but it has the advantage of both parties being in control of the outcome, and negotiating a settlement that they can both move forward with. This point is one of the principal reasons that mediation is becoming increasingly popular.

How do Business mediators fit in to this?

Many of the potential issues surrounding a business relationship are complex and can be very personal, especially when there’s a family or romantic involvement; and this can lead to one of the biggest stumbling blocks to the parties sorting out the problem themselves.

By the time the issues are out in the open the two warring sides are often hardly on speaking terms and even if they are, there can be a deep distrust of each other’s motives. This is why it can be critical to get an independent third party involved when there’s a dispute.

A skilled mediator can often persuade one party or the other to accept for example; that they have contributed to the dispute not necessarily by a ‘sin of commission’ but rather by not doing something or not voicing their concerns at an early stage to avoid the situation escalating.

How do I find a Business mediator?

Having a word with someone you know and trust is a useful first step rather that listening to the sultry voice of Miss Google Assistant or contacting your solicitor. But let me make it clear, I’m not knocking all solicitors, many, including my own, have excellent mediation departments but the problem is that too many firms have been seduced by the ‘have you been in an accident recently’ culture and see litigation through pound signs!

There are also quite a number of good quality private mediation firms out there, but before contacting one first check that they are vetted and registered by the Civil Mediation Council (CMC).

The CMC is the recognised authority in England and Wales for all matters related to civil, commercial, workplace and other non-family mediation and is a not for profit company, operating as a charity.

They will provide you with a list of professional and experienced mediation providers working in your area, with all the mediation providers registered by the CMC and who offer a simple low-cost method of resolving a wide range of civil disputes out of court. For more information go to: http://www.civilmediation.org

Dispute Avoidance

As the field of mediation widens and develops, there has been an increasing interest in the area of Dispute Avoidance, in particular in the SME sector.

(An SME is defined as a micro, small or medium-sized enterprise which employs fewer than 250 people and which has an annual turnover not exceeding £40m)

The most common reason for individuals to fall out is in the area of partnership and shareholder disputes. The typical story goes something like this: Well-meaning individuals have a good business idea, and so they set up a company/partnership and start working. At this stage in the game they are full of enthusiasm, optimism, and good will, and they think that this state will last happily ever after.

Unfortunately things can and often do go wrong: one thinks they are working more than the other; they start disagreeing on the direction and development of the business; they don’t see eye to eye on how much and when to be paid; with usually the more spectacular disputes arising from a deteriorating familial or romantic relationship.

These problems, and a host of others, afflict almost all partnerships and director/shareholders to some extent. It is only when the cracks start appearing that the parties start looking for the all-important documents that set out how the company/partnership should operate and regulates all shareholder related matters, i.e. articles of association, partnership agreements and shareholders documents.

Unfortunately, it may surprise you to know that in a large proportion of SME’s operating in the UK these documents either simply don’t exist, or if they do, they are box standard model documents, which are pretty much useless in real life.

The truth of the matter is that the real root cause of most of these problems is a lack of foresight and planning. Before getting stuck in to a business relationship, the parties need to work out all the potential issues that may arise, and how they will be dealt with. This would then set out the basis for the custom designed partnership or shareholders’ agreement unique to each business and relationship. This is the essence of dispute avoidance.

Get your accountant involved

These days it is rare for an accountant not to be involved in the setting up of a new company or partnership, which is the ideal time to get advice on getting a proper agreement drawn up. All accountants who’ve been in business for a while will know from their experience with other clients, the pitfalls of not having an agreement in place right from the start.

Your accountant will actively contribute to designing the solution, with Issues such as directors’ loan accounts, assets/cash invested into the business, share valuations, remuneration and dividends, to name but a few, discussed and agreed before the business gets going.

Image of David Jones Shrewsbury Accountant and Founder of Morgan Jones

If you would like more detailed information on some aspect of UK Tax, send me an e-mail and I’ll be pleased to advise further.