Deadlock Clause Multi-Choice

Deadlock Clause Multi-Choice

CO.SH.02.02
This Deadlock Clause Multi-Choice template provides a number of options for how to resolve an impasse which can all be incorporated into a Shareholders’ Agreement either at the drafting stage or as an agreed amendment to an existing Shareholders’ Agreement.

Often in private companies with equally owned shares, such as a company with two shareholders who each own a 50% share, situations can arise where votes are split down the middle and with no prospect of an agreement being reached. In these deadlock situations where there are no mechanisms in place to deal with the scenario, sometimes the only solution is to wind up the company. In order to conserve the business as a going concern a Deadlock Clause Multi-Choice will provide either one or a range of methods of breaking the deadlock.

Only when a deadlock has arisen will the parties to the agreement then be required to choose a means of breaking the deadlock, with a failure to do so automatically resulting in a voluntary winding up of the Company. The benefit of the multi-choice procedure is that often the parties find they are more willing to compromise when faced the draconian measures found in the deadlock provision, in particular the prospect of being forced to wind up what may otherwise be a profitable company.

Shareholders can opt for one of four options: a casting vote to be given to the Chairman of the board; arbitration; or a “Texas shoot-out” style buy out whereby each party sends a sealed cash bid to an umpire within a specified number of days stating the maximum price at which they are willing to buy the shares of the other party. The sealed bids are opened together by the umpire, and the highest sealed bid "wins", and that bidder must then buy (and the "loser" must sell) the other party’s shares in the Company. The final option is a 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.

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