Company Director Disputes

Reviewed by

Chris Andersen

Reviewed by Chris Andersen

Chris became an Insolvency Practitioner in 2014 and is currently regulated by the IPA.

He is experienced in contentious insolvency with excellent analytical skills and strong knowledge of both general and technical insolvency matters.

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23rd May 2026

Director disputes are the leading cause of paralysis in small companies facing financial difficulty. Two directors who disagree about whether to rescue or close the company can delay the decision long enough that the choice is made for them by a creditor filing a winding-up petition.

We see this regularly. One director wants to keep trading. The other wants to liquidate. Neither will concede. Weeks pass. The company continues to trade while insolvent because the directors cannot agree on the exit route.

Every week of that deadlock increases the wrongful trading exposure for both of them. We tell directors in dispute: the argument about what to do costs less than the argument about why you did nothing.

Quick Answer on How to Prevent and Resolve Director Disputes

Prevention: have a shareholders’ agreement that sets out decision-making procedures, deadlock resolution, and exit mechanisms before you need them.

Resolution: if you are already in dispute, the options are mediation, shareholder intervention, an unfair prejudice petition (section 994, Companies Act 2006), or, if the company is insolvent, letting the insolvency practitioner make the decision for you by entering a CVL or administration.

Common Causes of Director Disputes in Financially Distressed Companies

• Disagreement about viability. One director believes the business can be saved. The other believes it should be closed. Neither has sought independent insolvency advice to settle the question objectively.
• Unequal financial exposure. One director signed a personal guarantee and the other did not. The guarantor wants to close before the guarantee is called in. The non-guarantor wants to keep trading because they have less to lose personally.
• Allegations of misconduct. One director accuses the other of taking excessive drawings, making conflicted transactions, or failing to disclose the true financial position. Trust breaks down.
• Control disputes. A majority shareholder-director overrides the minority director’s objections. The minority director feels excluded from decision-making.
• Exit disputes. Both directors agree the company should close, but disagree on the route, the timing, or who bears the cost.

We find that most director disputes in distressed companies share one root cause: the directors did not have a formal governance structure (shareholders’ agreement, articles with dispute resolution, documented decision-making) and are now making high-stakes decisions by argument rather than by process.

How to Prevent Director Disputes

Shareholders’ agreement. This is the single most effective prevention tool. It should cover: how decisions are made (majority vs unanimous for specific categories), what happens in a deadlock, how a director can exit (buy-sell provisions), and what happens if the company becomes insolvent.

If you do not have one, get one drafted before you need it. The cost is typically £1,000 to £3,000 and it prevents disputes that cost tens of thousands to resolve.

Regular board meetings with minutes. Formal meetings force discussion, create a record, and provide a framework for disagreement. We see companies where directors have not had a formal board meeting in years. Every decision was made informally, nothing was documented, and when the dispute arrives there is no record of who agreed to what.

Clear role separation. Define who is responsible for what. Financial decisions, operational decisions, and client relationships should have clear ownership. We see disputes escalate when both directors believe they have authority over the same area.

How to Resolve Director Disputes When the Company Is in Difficulty

• Seek independent insolvency advice together. A licensed IP can assess the company’s position objectively and present the options to both directors. The IP’s assessment is based on the numbers, not on either director’s preference. We find that an independent professional opinion often breaks the deadlock because it removes the argument from personal opinion to professional assessment.
• Mediation. A commercial mediator facilitates negotiation between the directors. Mediation is faster and cheaper than court proceedings and produces a binding agreement if both parties consent.
• Section 994 unfair prejudice petition. If one director is being excluded from management or the company’s affairs are being conducted unfairly, the minority director can petition the court. The court can order a buyout of the petitioner’s shares, regulate the company’s affairs, or authorise proceedings on behalf of the company.
• Just and equitable winding up. Under section 122(1)(g) of the Insolvency Act, the court can order the company to be wound up if it is just and equitable to do so. This is the last resort when the deadlock is irreconcilable and the company cannot function.

We stress the urgency: if the company is insolvent while the directors argue, both directors are accumulating wrongful trading exposure. The dispute does not pause the insolvency clock.

We have seen directors who spent three months arguing about the route while the company’s deficiency grew by £40,000. Both directors faced the same wrongful trading claim.

What You Should Do Right Now About a Director Dispute

1. If you have a shareholders’ agreement, read it. It may already contain a deadlock resolution mechanism.
2. If you do not, propose independent insolvency advice. Both directors attend, the IP assesses the position, and the numbers decide.
3. Do not let the dispute delay action on insolvency. Your duty to creditors applies regardless of whether you agree with your co-director.
4. Document your position. If the dispute leads to one director blocking a CVL or refusing to cooperate with the liquidator, the conduct report will note who obstructed and who tried to act.

Company Debt connects directors with licensed insolvency practitioners who can provide an independent assessment. A confidential consultation, jointly or individually, will give both directors the objective picture they need to make a decision.

FAQs on Director Disputes