Forcing A Business Divorce–It Is Possible

A client of mine was shut out of a company in which it owned 50%. The other partners engaged in self-dealing and withdrew over $80,000 from the company’s accounts without my client’s consent or permission. A deadlock ensued between partners each owning 50-50.

In a classic arrangement, my client bankrolled the company, and the other partner provided the operational support by running day-to-day functions.

Before contacting me about the partnership dispute, my client attempted to get the other partner to settle by basically giving my client personal guarantees that the money invested would be refunded. If that happened, my client agreed to tender back its 50% ownership, giving 100% of the company to the other partner.

The other partner took advantage of my client’s willingness to “work things out” by passively not engaging my client in any substantive discussions. This is a form of aggression and is a classic sign of the dysfunction in the partnership.

After I was contacted, I immediately felt a temporary restraining order and temporary injunction was necessary to re-inject my client’s ownership and management rights back into the company. Additionally, it was clear that the partners needed to divorce each other. With all trust between the partners lost and with no mechanism to give one partner more say than the other, the clearest mechanism to accomplish the divorce is through the appointment of a receiver, a court appointed person charged with liquidating the company.

So, on June 29, 2012, I asked a Harris County District Court judge to grant a temporary restraining order, temporary injunction, and appoint a receiver. When my receiver motion was presented, the attorney for the defendants told the judge his clients agreed to the motion. This came as a complete surprise to me, because no one wants to agree to their company’s forced liquidation.

The Harris County District Court judge granted the injunction, giving my client its rights back in the company, and my request for a receiver was granted as well.

In a partnership dispute where there is a 50-50 deadlock with no mechanism to break the deadlock and with the other partner is not willing to talk, a commercial litigation attorney is left with little choice but to seek emergency relief through a temporary restraining order and temporary injunction. A request for a receiver is exercised only after all other attempts at resolution are exhausted. In this particular case, discussions bore no fruit and the client was shut out, so seeking a receiver was the only option.

As distasteful as it may be, a business divorce through a forced liquidation company may be required in a deadlocked partnership.

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