Unfortunately, like marriages, businesses sometimes end in divorce. The reasons for the demise of a business can range from petty disputes involving ego to deep seated financial problems. Deadlocks or irreconcilable conflicts as to the direction and operation of a company can cause substantial emotional distress as well as financial losses. Also, parties being squeezed out or treated inequitably by their business associates must find a way to protect their rights. Regardless, when the problems cannot be resolved by the parties or owners, then the lawyers get involved. Just as in a marital divorce, business divorces can be complex, long and expensive. Substantial rights and interests can be adversely affected if you are not careful.
In cases of a business divorce, the lawyer’s role is to evaluate all facts and circumstances and determine the most productive method of resolving the issues. The lawyer’s analysis will depend on whether the business is a partnership, corporation or other type of entity. It also will depend on the underlying documents regarding the formation and operation of the business and whether the parties previously reached some form of agreement on what to do when things are not working.
Often the method to resolve the dispute will involve either the closing and liquidation of the business or one side’s buying out the other. This can occur by the terms of the underlying documents, by post-dispute agreement or by judicial order. There are many ways to accomplish those objectives and the method and procedures will depend on the specific facts of each case. If a buy-out is involved, valuations and financial issues are usually predominant. Often, the client must retain an expert to value the business and perhaps provide creative ways for the buy-out to be financed. Maintaining cash flow is critical.
If a solution cannot be accomplished by agreement, the parties must look to the courts. Sometimes it may require something as simple as filing a petition to compel inspection of the books and records of the business to settle the dispute. Other times, a formal complaint, seeking recovery and relief under the common and statutory law (such as for breach of contract, breach of fiduciary duty, appointment of a receiver or provisional director, an accounting, dissolution, winding up, and distribution of assets), is necessary. It is generally easier to bring about a liquidation of a partnership or joint venture by court order. In cases of a corporation, such a result is not favored and will be ordered only upon evidence of certain egregious circumstances such as gross misconduct by those in control.
Generally, the courts have only limited remedies which they may provide to a disgruntled party, and they are rarely able to order a buy-out absent an agreement providing such relief. Strategies to handle such litigation are as diverse as the people and businesses involved. The parties usually are wise to consider a negotiated settlement. The best bargaining leverage is generated by properly identifying and evaluating all your options and thereafter communicating a strong and precise position to the other side. It is essential to design a strategy intelligently and carefully that realistically fits your interests and objectives.
— Curt Ward