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Shareholder and Boardroom Disputes in Pakistan: The Case for Mandatory Mediation under the Companies Act, 2017

Shareholder and Boardroom Disputes in Pakistan: The Case for Mandatory Mediation under the Companies Act, 2017

Each year, there is a predictable percentage of cases that fall before Pakistan’s Company Benches and Competent Officers under the Companies Act 2017, which do not involve regulatory breaches, but rather frayed relationships: a minority shareholder claiming oppression under Section 286, a stalemate among the directors for a board resolution, or even a family business where a succession issue has hardened into litigation. The inability to prove a point of company law is no reason to win or lose such a battle. They are disputes in relationships in business suits, and Pakistan’s dispute-resolution system is not geared up to being treated as such.

The blend of corporate law and alternative dispute resolution (ADR) requires much greater attention than it is afforded in the practice prevailing in Pakistan. However, there remains very little guidance of mediation as a preliminary or parallel stream in the Companies Act 2017, and the Securities and Exchange Commission of Pakistan (SECP) has been granted extensive jurisdiction in relation to oppression and mismanagement petitions, class action and derivative suits. This is in stark contrast to the UK, where a mediation process, often facilitated by the court, is routinely followed in unfair prejudice petitions under Section 994 of the Companies Act, 2006, mediated by a well-established mediation bar of company-law experts and welcomed by a developed judiciary as a default in an unmediated unfair prejudice dispute involving shareholders. Pakistan has yet to develop these institutional traits nor, till recently, reputable talents to do the same. But that’s starting to change, slowly.

Why Shareholder Disputes Are Different

Commercial arbitration has attracted the lion’s share of ADR attention in Pakistan, largely because cross-border trade and construction contracts have obvious arbitration clauses to point to. Shareholder and boardroom disputes are different in kind. They typically arise between parties who must continue to work together, or at minimum wind down their relationship without destroying the underlying business. In an effort to obtain his or her recovery in an oppression claim, which may take four years, a minority shareholder is sometimes left with a company that lost customers, key employees, and a banking relationship during........

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