This article was written by Jialin Liu Solicitor at W & G Lawyers.
Running a company together requires trust and clear expectations. When relationships between shareholders or directors break down, disagreements can affect financial management, business decisions and everyday operations. If the company is also struggling to pay its debts, the situation can become urgent.
You may be asking: Can I access the accounts? Can I challenge a transaction? Can I leave the company or recover my losses? Could the company’s debts put my personal assets at risk?
We can help you understand your position, assess the risks and identify a practical way forward.
When should you seek legal advice?
Consider seeking advice if:
- Company finances are unclear: You cannot obtain accounts, bank statements or satisfactory explanations for payments.
- You suspect a conflict of interest: A director is arranging transactions with a business connected to them, and you have concerns about pricing, approval or the benefit to the company.
- Agreed commitments are not being met: Someone has failed to contribute the time, funding or management support they promised.
- Decisions have stalled: Shareholders or directors cannot agree on important matters, leaving the business unable to move forward.
- You want to end the relationship: You are considering selling your shares, buying out the other shareholder, selling the business or pursuing compensation.
- The company is under financial pressure: Rent, loans or other debts are overdue, or the company has received a solicitor’s letter or formal demand.
These situations can involve overlapping shareholder rights, directors’ duties and contractual obligations. Equal shareholdings do not necessarily allow either party to make decisions alone or require the other to leave. The company’s governing documents and applicable rules matter. [1]
Which documents affect your options?
The starting point is usually what the parties agreed and how the company has operated. Relevant documents may include:
- The company constitution and shareholders’ agreement: These may set out voting rights, decision-making powers, share transfer restrictions, exit arrangements and dispute procedures.
- Director appointment, employment or services agreements: These help establish each person’s responsibilities and any enforceable commitments.
- Financial records and transaction documents: Accounts, bank statements, contracts, invoices and payment records can help explain where money has gone.
- Meeting minutes and correspondence: These may show what was agreed, approved or disputed.
- Leases, loan agreements, personal guarantees and demand letters: These help identify the company’s obligations, potential personal exposure and deadlines requiring attention.
Directors and shareholders have different rights to access company records. We can advise on the rights available to you and the appropriate process for obtaining information. Relevant provisions include sections 247A and 290 of the Corporations Act 2001 (Cth). [2]
You do not need to have every document before seeking advice. If there is no shareholders’ agreement, or records are incomplete, we can review what is available and identify the next steps.
What should you do if you suspect misconduct?
An unexplained payment or questionable contract deserves attention, but it does not automatically establish fraud or a breach of duty. The purpose of the transaction, the director’s authority, any personal interest and the benefit received by the company all need to be examined.
Directors must act with care and diligence, act in the company’s best interests and avoid improperly using their position or company information. Disclosure obligations may also apply where a director has a material personal interest. [3]
We can help you organise the evidence, request relevant information and assess whether an independent accountant should investigate particular transactions. If company assets are at immediate risk, we can also consider whether urgent court protection is appropriate.
Before moving company funds, restricting another person’s access or stopping contractual payments, obtain advice about your authority and the possible consequences. These steps can create additional disputes if handled incorrectly.
Will reporting the matter resolve the dispute?
Evidence of suspected criminal conduct may warrant a report to the police or ASIC, depending on the circumstances. However, reporting does not necessarily resolve questions about compensation, ownership or control of the company.
ASIC makes clear that it does not resolve private disputes or act to recover money for individual complainants. A report therefore may need to be considered alongside other options, including negotiation or civil proceedings. [4]
We can help you distinguish between concerns that require further investigation, potential legal claims and matters that may justify a report.
Can you leave the company and end your responsibilities?
An exit may involve more than transferring shares. The parties may also need to address the purchase price, payment terms, shareholder loans, resignation as a director and ongoing contractual obligations.
Personal guarantees require particular attention. A share transfer or resignation should not be assumed to release a guarantee given for a company lease or loan. Any release needs to be checked against the relevant documents and agreed with the creditor where required. Potential liabilities arising from your time as a director also need separate consideration. ASIC explains that personal guarantees and certain breaches of directors’ duties can expose directors to personal liability. [5]
We can assist with negotiating and documenting an exit, including arrangements intended to reduce the risk of further disputes.
What if the company cannot pay its debts?
If you are a director, the company’s financial position needs attention even while an internal dispute continues. Relying on the other director to manage the accounts does not remove your own responsibilities.
Allowing a company to incur debts while insolvent can expose directors to personal liability where the legal requirements are met. ASIC recommends obtaining professional advice promptly if you suspect the company cannot pay its debts when they fall due. [6]
A solicitor’s letter, lease default notice or statutory demand may also require action within a specific timeframe. These documents should be reviewed promptly.
Early advice can help you assess whether continued operation is viable and whether restructuring, voluntary administration or liquidation should be considered. [7]
How we can help
We start by understanding what you want to achieve: access to information, protection of company assets, continued operation, an agreed exit or recovery of losses.
We then assess the available documents, evidence and financial circumstances to identify realistic options. Our assistance can include:
- Reviewing company documents and explaining your rights and duties.
- Requesting accounts, transaction records and explanations.
- Assessing potential claims and whether they belong to you or the company.
- Representing you in negotiations or mediation.
- Preparing share sale, exit and settlement agreements.
- Advising on court proceedings and urgent protective measures.
- Working with accountants and insolvency professionals where financial issues require specialist input.
Not every dispute needs litigation. The appropriate approach should reflect your objectives, the urgency of the situation, the likely costs and the practical prospects of achieving a useful outcome.
Take the next step
If you are facing a shareholder dispute, concerns about a director’s conduct or mounting company debts, contact us to discuss your position.
You can begin by providing any agreements, relevant correspondence and legal notices you have received, together with a brief explanation of your concerns. We can help identify what needs immediate attention and what to do next.
This article provides general information about Australian law and does not constitute legal advice. Your options will depend on the company’s documents and the circumstances of the matter.
References
- ASIC — Disputes between officeholders and/or members of small proprietary companies
- Federal Register of Legislation — Corporations Act 2001 (Cth)
- ASIC — Obligations of company officeholders
- ASIC — Reporting misconduct to ASIC
- ASIC — Company director liabilities when things go wrong
- ASIC — Insolvency for directors
- ASIC — What to do if your company is insolvent
Visit or Contact Us
📍 68 Bryants Road, Shailer Park QLD 4128
📞 (07) 2810 5666
🌐 www.wglawyers.com.au
✉ info@wglawyers.com.au
Disclaimer
This article is general information only and does not constitute legal advice under Australian law. For advice specific to your situation, please contact W & G Lawyers. For further details, please click here to view our disclaimer.