The famous Yankee baseball coach Yogi Berra used to say "It ain't over till it's over".
A recent case shows that if you are settling a complex shareholder dispute you need to ensure that there is a binding agreement. An agreement in principle doesn't cut it. The NSW Supreme Court recently confirmed this in the matter of Leslie Muir Holdings Pty Limited.
The parties to the dispute were brother and sister (which is a pretty sad place to start) and they were fighting over assets owned by a family company. The sister shareholder argued that the company was operating in a way that was contrary to the interests of its members as a whole, and was oppressive, unfairly prejudicial or discriminatory against her.
After being in dispute for two years (just imagine those Christmas dinners), the siblings were sent to court-ordered mediation, where they signed a Heads of Agreement that provided for the purchase of the sister's 40% shares in the company. So far, so good. But the "agreement" was "subject to joint tax and structuring advice".
The problem is, the parties didn't decide on what the purchase would look like. So after receiving advice, the parties ended up in another dispute about whether the purchase of the 40% "interest" included the debt owed by the company to the sister (as well as whether the purchase would be in cash or in some other form namely an interest in the family holiday house).
The sister was looking for an order that the HOA be enforced, but the brother said it was either unenforceable, or that any settlement included the loan to the company.
After all the bickering had finished the Court held that the parties had the intention to be bound when signing the agreement, but that the terms were so uncertain on these essential details, that the agreement was unenforceable.
The Court said that the HOA should have included provisions for how to address the parties' differing interests in the outcome of the structuring advice, and criteria to determine the content of the document in the event of a dispute.
So, if you want to avoid this sad outcome, make sure:
1. you are well prepared for any potential outcome in a settlement negotiation;
2. all necessary tax and financial advice has been sought; and
3. if the settlement requires things to be done afterwards you have an agreed mechanism for resolving any deadlocks.