Family firms told to avoid costly court battles

Disputes need mediation - accountants

Feuding shareholders in family firms should make better use of mediation to avoid potentially disastrous legal costs, according to accountancy firm Wilkins Kennedy.

According to Wilkins Kennedy, disagreements between family shareholders often erupt when a new generation of management is introduced or the company decides to take a change in direction.

With over three-quarters of UK companies being family owned, the accountancy firm said disputes of this kind that lead to court cases are far too common.

Wilkins Kennedy said that an experienced accountant should be able to create a good environment to settle disputes between family members before grievances are taken to the courts.

As well as being less costly than legal action, the accountancy company said that matters such as the valuation of a business during a buy-out are more easily resolved when a professional third party is used as a mediator.

Wilkins Kennedy pointed out that the process is quicker than court action and is confidential.

Peter Goodman, partner at Wilkins Kennedy, said that family business people usually know the value of their stake in a firm, but due to a competitive nature or lack of trust, they are often unwilling to accept an offer from third party.

“Disputes between relatives tend to get more acrimonious than between pure business partners so often the only way that these disputes can be resolved is for the business to be split or for one shareholder to buy out the other.

“However, this situation can become like a messy divorce. The source of the dispute does not normally arise over sharing the assets but this is what prolongs it,” he said.

Wilkins Kennedy advised companies to use clauses in shareholder contracts which stipulate when mediation should be used and under what conditions one stakeholder is able to buy out another.

The accountancy firm claimed that contract clauses of this kind are particularly important if a business is split 50-50 between two shareholders.

“People going into business together, even relatives, should plan for all possible eventualities.

“Agreeing on what happens if the relationship sours is not a sign of lack of trust – its just good business sense,” he said.

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