The OMB Law Board: S6 Ep 9 | The Business Break-Up Nobody Plans For

Going into business with someone often starts like a honeymoon — full of trust, shared vision and good intentions. But what happens when that relationship breaks down? 

In this episode of The OMB Law Board, host Simon Bennett is joined by Erlinda Nunn from our Property & Commercial team to unpack the reality of shareholder and partnership "bust-ups" — why they happen, how they escalate, and what business owners can do before things fall apart.

Erlinda breaks down the top five reasons partnerships collapse, the critical role of shareholder and partnership agreements, and why the best time to plan for a dispute is before you're in one. Whether you're starting a business with a partner, sitting on a board, or already navigating tension with a co-owner, this episode gives you the practical grounding to protect yourself and your business.

What is The OMB Law Board?

Welcome to The OMB Law Board, the podcast where legal insights meet practical advice. Hosted by Simon Bennett, Managing Partner at OMB Solicitors, this show delves into what you can expect when engaging with OMB Solicitors. Specialising in property law and commercial law, OMB also boasts dedicated teams for estate planning, contested estates, body corporate matters, litigation, and family law.

Each episode features in-depth discussions led by experienced team leaders, some with over 20 years of expertise. You'll gain valuable knowledge on initial consultations, cost assessments, timelines, and the importance of clear communication and confidentiality in legal matters.

Join us to break down barriers and navigate your legal journey with confidence. Tune in for expert advice, client stories, and tips on how to prepare for your legal needs. The OMB Law Board is your trusted source for all things legal.

00:00:05:16 - 00:00:27:24
Unknown
Okay. Welcome back to the OMB Law Board. Today, I've got a Erlinda Nunn from our property and commercial team. Erlinda, welcome back to the OMB Law Board. Thanks for having me, Simon. Erlinda, it feels like a bit of an episode of MAFs today because we're talking about bus stops, holder bus stops, partnership bus stops. You know, you go into business with someone.

00:00:28:00 - 00:00:38:12
Unknown
The relationship is good. We're friends. Everything is fantastic. But that doesn't last. And that's not reality. So we're going to talk about what happens when things go wrong.

00:00:38:14 - 00:00:52:22
Unknown
That's right. And unfortunately, we see it all too common with these kinds of arrangements. Okay. So let's drill down a little bit on that about bus stops in business relationships, how they happen, what they are and how we deal with them.

00:00:52:22 - 00:01:20:10
Unknown
So Linda, let's get into it. I guess the first thing is what sort of structure are you talking about? Companies, partnerships. Oh, it could be either all. You could be in a partnership where, say, for example, you and I go into business together, or it could be a larger enterprise where we have a few more directors, a few more players on the field, different personalities that we need to navigate, how people do things, that sort of thing.

00:01:20:11 - 00:01:45:19
Unknown
And even quite commonly, we see family in this situation. We do indeed, we do see families. And unfortunately, sometimes it's not all rosy. Okay, so let's start at the beginning. What is a bust up if you like, in these business situations? It could be a number of things. It could be financial control, how we make decisions, whether or not we trust one another.

00:01:45:21 - 00:02:11:05
Unknown
It could be a deadlock when we're deciding on something. And then if we can't decide on something, we can't move forward. Okay, so we've got these business structures, partnerships, companies, etc. that are running a business or an enterprise. And the parties, the partners, let's say, are break down irretrievably. It could be personality. It could be something to do with the business as you said.

00:02:11:06 - 00:02:30:10
Unknown
What are the steps we take? How do we assess it and how do we start to get a structure to move forward in these situations? So the first thing we would ordinarily do is we would look at the shareholders agreement if there is one. The shareholders agreement will often dictate how decisions are made and what happens in the event there is a bus stop.

00:02:30:12 - 00:03:01:08
Unknown
Okay. And what are some are some of the common ways that that shareholders agreements or company constitutions etc. will deal with that. Yeah. So there'll be clauses in there about how we make decisions. So whether it's unanimously or whether there's a majority that can that can make the decision. There could be things such as if we can't decide on something, we need to get a third party mediator in, or we go to something such as a mediation before all hell breaks loose.

00:03:01:09 - 00:03:26:09
Unknown
Okay, so it sounds like our first point of call when there is a breakdown in this relationship is to go to the underlying document. What happens if there isn't a document? The parties didn't have a shareholders agreement. They didn't have a partnership agreement. That's really interesting. Sometimes there will be other documents, as you said, such as the company constitution, which may may give us the framework of how we resolve these disputes.

00:03:26:09 - 00:03:46:10
Unknown
But if there isn't an agreement in place, that's where things can get messy, and that's where things can easily proceed to court proceedings. So if you don't have these underlying documents, it may well be that you're off to court. Correct. What about an informal mediation process? You can definitely have an informal mediation process before you reach that stage.

00:03:46:10 - 00:04:10:01
Unknown
And we often encourage clients to look at those alternative dispute resolution before we end up in court. Because as you know, these things can become very costly and can, you know, take up a great chunk of your life and no doubt be extremely stressful. That's right. Okay, let's take a step back if we can. I want to talk prevention rather than fixing it.

00:04:10:02 - 00:04:39:02
Unknown
How do we prevent these things happening? And what documents should we get in place to make sure that we're protected? If they do? That's right. So as we said, a shareholders agreement is generally a great start. The shareholders agreement is something that you would ideally like to have in place before you enter into these kinds of endeavors. The shareholders agreement will have things such as who's contributed, what capital, how decisions are made, what happens if we can't make a decision if we want to exit the business?

00:04:39:07 - 00:05:03:08
Unknown
There will be strategies in place about how we value the shares, how we eventually exit the business if we want to sell our shares, that sort of thing. So planning for the dispute before it happens? That's right. Unfortunately, as lawyers, sometimes we have to look at the glass half empty. Okay. And I guess the equivalent of a shareholders agreement for a partnership would be a partnership agreement.

00:05:03:13 - 00:05:31:11
Unknown
That's correct. And would it cover all of the same type of things? Yes, it would in that smaller structure. Okay. I know we're quite often say here that when you're in the honeymoon phase of setting up a business, that's when you should have the really difficult conversations 100%. Just like any other relationship, you need to have that open communication and trust and be able to know that you've got that framework in place, that if there is a dispute, you are able to work through it sensibly.

00:05:31:12 - 00:05:40:11
Unknown
Okay. I'll Linda, I want to play a bit of a game with you. Now, I want you to hit the five key reasons we see partnerships break down.

00:05:40:13 - 00:05:55:22
Unknown
That's a good one. So the top five would be lack of trust, personality clashes, financial control, unequal effort and unequal ownership in the business and no agreement in place.

00:05:55:24 - 00:06:15:24
Unknown
Yeah, they all make sense don't they? I mean, it's a balancing act of a relationship and it's like any other relationship, this business relationship where there's unequal contributions of effort or finance or there's unequal bargaining power and relationships break down irretrievably

00:06:16:01 - 00:06:17:07
Unknown
in those circumstances.

00:06:17:07 - 00:06:27:10
Unknown
As we've discussed, there are preemptive things you can do about getting agreements done, and you can help our listeners and viewers if they find themselves setting up a business of this type.

00:06:27:10 - 00:06:47:08
Unknown
100%. That's something that our firm offers, and we can definitely assist with drafting a shareholders agreement to prevent these potential bus stops. And I'm sure the expertise in getting the detail right in the clauses and the drafting is really important when the parties are on good terms, because when they're not, they're no longer talking. That's right. Okay.

00:06:47:08 - 00:06:47:11
Unknown
Well,

00:06:47:11 - 00:07:10:24
Unknown
thanks so much for joining us today. We really appreciate the insight you've brought into partnership bust ups, how to avoid them, and what to do preemptively to prevent them happening in the first place. If our viewers or listeners have any comments or questions, please contact our team and Alinda or drop us a comment on the link below and join us for the next episode of the OMB Law Board.

00:07:11:00 - 00:07:12:19
Unknown
Thank you Erlinda. Thanks, Simon.