How a forensic accountant will resolve shareholder disputes

Shareholder disputes. shareholders around a a table disputing. forensic accounting

How a forensic accountant will resolve shareholder disputes

When disputes arise between shareholders they can be highly damaging to the business. When these shareholder disputes are ongoing, they can create ongoing management problems and reputational issues.

Entrenched positions can make it difficult for common ground to be found with any possibility of mutual agreement soon being lost. In many cases, independent, professional advice must be sought as quickly as possible.

Shareholder disputes will often be based on disagreements regarding the value attributed to the firm, and the interest that different parties have within it. Forensic accounting can be a way to get to the bottom of the issue and resolve the dispute as amicably as possible.

Why might a shareholder dispute occur?

Shareholder disputes can arise for multiple reasons. A minority shareholder may believe that they are not being consulted properly regarding how the company is managed, or they may have a dispute about share dividends.

A common point when disagreements can arise is at the departure of a shareholder who also acts as a director. Disputes about the terms of their departure, and the value of their shares are common. Disagreements about the exercising of fiduciary rights are also common, with transactions being disputed by other shareholders

While shareholder agreements can outline how disputes will be handled, clauses within the agreement can become sources of dispute in themselves.

How can forensic accounting help resolve shareholder disputes?

Many disagreements are centred on the value that is attributed to a firm and the interest of individual shareholders. Forensic accounting can be used to meticulously investigate the details of the case, as well as the broader finances and standing of the company.

A forensic accountant can gather and interpret important information which can clarify the issue, reducing the likelihood of litigation being needed.

Forensic accountancy will collect and analyse information and consolidate anything that may prove useful in a future court case or for other, non-litigation purposes. Forensic accounting may be as simple as a review of the firm’s financial statements, or a complete audit of the company assets.

Some of how forensic accounting can assist in the resolution of shareholder disputes include:

  • Independent Valuation of Shares

Forensic accounting can diffuse disagreements about the value of shares in a company.  In privately held companies, indications of a value are not easily obtained as shares are not publicly traded in an open market.

An independent valuation can provide this information, helping to better inform parties to a dispute and providing valuable information for impartial observers of any disagreement.

  • Retiring Shareholders

When shareholder directors retire or leave the company it can lead to disputes over the terms of their departure. A particular point of contention is the value of their shares. When disagreements arise which can’t be resolved concerning a shareholder agreement, then forensic accountancy can provide some clarity.

Forensic accountancy can examine the specific circumstances of the company, the value of a shareholding and the interpretation of any relevant clauses in the Articles of Association or Shareholders Agreement.

  •  Minority Shareholders

Disputes arise when minority shareholders believe that they are being unfairly treated. This might be about the management of the company, and the dividends being paid out.

The Companies Act 2006 includes specific provisions to deal with these situations although litigation can be costly and extended. These disputes can spiral, so it’s important to seek independent advice as early as possible. Forensic accountants can review the issues which give rise to unfair prejudices as well as assess the valuation of minority interests.

  • Expert Determination to Resolve Transaction Disputes

Expert Determination can help resolve a range of transaction disputes. It is a common form of dispute resolution for post-deal purchase price adjustments, as well as other disputes involving technical issues.

Forensic accounting provides a professional opinion, that gives clarity on the issue and will generally be quicker than litigation or arbitration. It can be very effective when an ongoing relationship between the parties needs to be maintained, and litigation could inflict terminal damage on that relationship.

How we help

 At Wilder Coe, we have extensive experience in helping clients find a resolution to shareholder and other disputes. Our forensic accounting and litigation services can handle personal, corporate, or contractual investigations and disputes.

We deliver a comprehensive range of financial, accounting, taxation, and investigative services to assist any case.

Contact us to find out more about how our forensic accountants can help you through your stakeholder disputes.

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Bee Lean Chew
Partner at Wilder Coe
Bee provides her clients with a clear and understandable presentation of fact, in all matters relating to Forensic Accounting. As an experienced member of the Forensic Accounting team at Wilder Coe Ltd, Bee can support you with personal and corporate investigations.