Deadlock Clause Multi-Choice

This Deadlock Clause Multi-Choice template provides a number of options for resolving an impasse, all of which can be incorporated into a Shareholders’ Agreement.

It can be included at the drafting stage or adopted as an agreed amendment to an existing Shareholders’ Agreement.

When deadlock may arise and why this template is used

In private companies with equally owned shares, such as where two shareholders each hold 50%, votes may be split evenly with no prospect of agreement being reached.

Where there is no mechanism to deal with this scenario, the only solution may sometimes be to wind up the company.

To conserve the business as a going concern, this multi-choice deadlock clause provides either one or a range of methods of breaking the deadlock.

Multi-choice approach and default outcome

The parties are only required to choose a means of breaking the deadlock once a deadlock has arisen.

If they fail to choose a means of breaking the deadlock, this will automatically result in a voluntary winding up of the company.

The multi-choice procedure may encourage compromise where the parties are faced with the measures in the deadlock provision, in particular the prospect of being forced to wind up what may otherwise be a profitable company.

Options available under this template

• A casting vote to be given to the Chairman of the board.
• Arbitration.
• A “Texas shoot-out” style buy-out.
• Voluntary winding up of the company (which will occur by default under Sub-Clause 1.4 if one of the other options is not chosen).

“Texas shoot-out” option

Under the “Texas shoot-out” option, each party sends a sealed cash bid to an umpire within a specified number of days stating the maximum price at which it is willing to buy the other party’s shares.

The sealed bids are opened together by the umpire; the highest bid “wins” and that bidder must then buy (and the other party must sell) the other party’s shares in the company.

Deadlock Clause Multi-Choice is part of Corporate. Just £38.50 + VAT provides unlimited downloads from Corporate for 1 year.