Most partnerships, joint ventures, weddings and many contracts and alliances start with big projects, big expectations, speeches and champagne! Most of the impasse provisions focus primarily on the termination provisions. This is based on the principle that a successful business enterprise should not be destroyed simply because the two partners cannot agree on a fundamental issue; The value of the company as a continuing business must be preserved and a fair way must be found to allow a party to withdraw with fair compensation for renouncing its participation in the company. Considering all the positive and negative aspects, it could still be beneficial for partners, such as a well-thought-out marriage contract before a wedding, to start a relationship in a sensible and clear way, avoiding so many serious problems at a later date. When companies are owned at 50:50 by companies or when certain issues require the unanimous approval of the parties to the joint venture, there is room for a so-called impasse. Here, despite their best efforts, the directors or shareholders of a company cannot agree on the best course of action for the company. In English law, the standard position is for a company to make decisions by a majority of the board of directors. If there are only two directors, it means that each decision must be approved by both directors, and if relations have collapsed irreparably, it may become impossible to approve even the simplest questions. Any attempt by a director to act alone in these circumstances is invalid, may be illegal and, in most cases, constitutes a violation of the administrator`s legal obligations. Shareholders should regularly not be interested in the small, insignificant disagreements that trigger the mechanism of the shooting, which is often seen as a last resort. If the proverbial “horse has already left the stable” and a dispute between shareholders grows, the resolution of the dispute is usually costly and the outcome uncertain, unless the articles of association and other agreements provide for appropriate arrangements. If a party does not want to expose itself to the risk associated with such clauses, it should not – according to the Nuremberg Higher Regional Court – participate in such proceedings and should not agree on a shootout clause with the co-shareholder. According to the decision of the Nuremberg Higher Regional Court, it is unlikely that a subsequent financial imbalance will lead to inefficiency. To avoid disputes over whether or not the shooting mechanism intervenes, it is advisable to clearly define when an impasse is present and in what type of impasse a shooting mechanism should intervene.
This may be the case, for example, if there is an impasse on an important and contractually defined corporate governance issue. As a rule, an exit clause is triggered in situations where a business partnership has deteriorated sharply and the situation is often compared to a divorce. Just like the long arguments between a couple who often separate [When?] Children can be left with emotional damage [after whom?], so even a business can be damaged by long battles between its owners. For this reason, experts in the field emphasize the importance of including an exit clause in a company`s shareholders` agreement in order to minimize the negative impact of a corporate divorce. As with a marriage contract, it is important [why?] to set an exit clause at the beginning of a business relationship if the interests still match and the partners still love each other. Rebecca Gardner, Corporate & Commercial Partner at Howat Avraam Solicitors, comments: “The most effective way to address the problem of stagnation is to discuss it openly at the beginning and agree on what should happen in the event of such a dispute. A written shareholder agreement that establishes a dispute resolution process gives both parties a framework to follow in the event of a dispute and, in most cases, avoids lengthy and costly legal proceedings. Even if a full shareholders` agreement seems exaggerated, where immobility is a realistic prospect, it is important to have some sort of dispute resolution process in place before something goes wrong. For example; Let`s say John and Mary have a 50/50 partnership in a furniture factory in town. Their company`s net assets are R5 million.
Jean wants to withdraw from the company because of the constant conflict with Marie. Fortunately, they had included a “Texas shooting” clause in their initial agreement. There are so many different types of termination provisions that the ingenuity of lawyers can create. However, a number of specific types of termination provisions are now applied fairly regularly in business transactions where the parts of the company have equal rights and have acquired distinctive descriptive names. It might be a good idea to sign the escape clause (or before marriage) when the champagne is bubbling! Remedies to your dilemma are rarely enough, so the only refuge you might need to get out of some of these relationships and agreements may be to hire a mediator or negotiator, or initiate some form of intervention by a third party or by yourself. In academic circles, it has been argued that these clauses are not economically effective in certain circumstances, as the partner who values the company the most is not always the one who buys the company. De Frutos and Kittsteiner propose in their paper that there should be no contractual obligation for the party triggering the clause to indicate the price in order to ensure an effective result. Instead, they advocate the inclusion of a clause in the termination agreement that states that the parties negotiate the right to be the person who decides to buy or sell at the price indicated by the other partner. They propose that these negotiations take the form of an ascending auction, in which shareholders give the right not to set the price per share. Each partner continuously increases their bid, but each partner can withdraw from the bid at any time.
The party who gives up becomes the one who must offer the price per share, but that person receives a payment from the other partner equal to the offer that ended the auction with.. .