Navigating Commercial Disputes in the Hospitality & Leisure Sector: Protecting Business Interests Amid Financial Strain

2024 saw many businesses suffer due to staff shortages, poor retention, and increased operating costs.

In their recent report, the ONS stated that staff shortages have peaked, with an increase of 83% more vacancies advertised, despite 300,000 jobs having been generated by the sector.

Currently, there are around 174,000 jobs available in the hospitality industry, showing clear signs of growth.

However, businesses are struggling to fill these vacancies, therefore impacting their ability to trade.

Along with staffing difficulties, the increased running costs associated with maintaining a hospitality business can be a significant hurdle for the sector.

There has been an increase of 55.2% in operating costs, proving to be a stressful challenge to overcome.

Consumers are now looking for food that has been locally sourced rather than imported, and with the increased cost of ingredients and the cost-of-living crisis pushing consumers to spend less, profit margins are being squeezed.

When faced with a dispute within the company, it is critical to maintain relationships as best as possible by resolving disagreements before they spiral out of control.

Staff often get wind of owner disputes and can feel uneasy about their role, impacting morale and staff retention.

Many hospitality and leisure businesses are owner-managed, with shareholders also being directors.

This can often create complex dynamics when there are differences of opinion, particularly if there is a deadlock.

In these types of situations, it is important to address issues early and to remember that there is a collective aim to ensure the company is prosperous.

Meeting to discuss matters openly and honestly can be a constructive way to clear the air. It could also be sensible to take external advice on potential key business decisions if you cannot reach an agreement.

Unfortunately, in some situations, opinions cannot be reconciled, and parties will seek to enforce their legal rights and remedies.

There can be several options depending on the precise nature of the dispute, including the relevant roles and shareholdings and these include:

1. Removal of a director
2. The sale or purchase of shares
3. Agreeing to or amending a shareholder's agreement to regulate the relationship between the parties
4. Amending the articles of association
5. Unfair prejudice petitions
6. De-mergers
7. In the most serious of cases, it is just an equitable winding up of the business

Unfair prejudice petitions are common in shareholder disputes, and we have extensive experience with them.

An unfair prejudice petition is a useful mechanism for shareholders of a company to apply to the Court to make an order that the company's affairs are being or have been conducted in a manner unfairly prejudicial to their interests or that an actual or proposed act of the company is or would be prejudicial.

Unfairly prejudicial conduct is often argued in owner-managed businesses where a shareholder, with a legitimate belief that they are entitled to participate in the running of the business, is unfairly excluded from the management.

This could happen when they have been removed as directors, or certain management functions have been removed. 

The Court has a very wide discretion when it comes to potential remedies, although typically it will not order an award of damages. Although its discretion is wide, some remedies are specifically set out in the Companies Act. These include a power to do any or a combination of the following:

• Regulate the conduct of the company's affairs in the future.
• Require the company to refrain from an act complained of or to carry out an act that the
• The petitioner has complained that it has omitted to do so (including ordering the company to amend its constitutional documents and resolutions).
• Authorise civil proceedings.
• Prohibit changes to the company's articles without the leave of the Court.
• Provide for the purchase of the shares of a member of the company by other members or (less commonly) by the company itself.

There are ways to tactically manage such disputes, most notably to make offers for the sale or purchase of the petitioner's shares by the guidance of the House of Lords decision in O'Neill v Phillips [1999].

It is sensible to take early advice on such offers as they can offer significant cost protection if pitched correctly or used as a basis to strike out an unfair prejudice petition altogether.