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August 07, 2020

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August 06, 2020

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Don’t Let Your Business Partner Use the Pandemic as an Excuse to Keep You in the Dark

In many places, COVID-19 is making a comeback, or never actually left. But as far as an effective excuse to keep business partners in the dark, the pandemic has been hanging around for far too long.

Using the Pandemic as an Excuse

I have written as recently as April about how an unscrupulous business partner could use the pandemic and resulting economic crisis to hide oppression by blaming any adverse economic consequence on the economic downturn, even if it is truly a product of theft or oppression. However, minority shareholder oppression can be far more subtle than that.

I have seen a marked uptick of business owners complaining about an inability even to see financial reporting from their own company and the reason, or excuse, is always the same – the pandemic. “I can’t get you those documents because the accountant is swamped due to the pandemic.” “We haven’t been keeping records as accurately as we should have because of the pandemic.” “Everyone is too busy to get you that information because of the pandemic.” Sound familiar?

Working Remotely

The most vulnerable minority business owner, of course, is one whose company is not closed but has been forced to work remotely. If you are not “in the loop” – especially if you are an absentee owner who does not work at the company – it is very difficult to know at what level your company is functioning. Is everyone busy? Surviving? Thriving? It is very hard to tell from the outside looking in with a remote run business.

If you do not work there, are not in constant contact with those who do, are not kept informed about workflow and revenue levels, and have a partner who feels it is a nuisance to answer to you, what are you supposed to do? It is a rational response for a majority owner who is running things and dealing with a crisis to want to focus on keeping the business afloat without constantly reporting to a third person. But if you are an owner, you are not some “third person” whose existence is something to be “dealt with.” You are an owner, and minority business owners, at least in New Jersey, have substantial rights – even in a pandemic.

Minority Shareholder Litigation

The last thing anyone should do is commence minority shareholder litigation over simply not being kept informed – at least not as a first, or even a second or third, step. But you should make it known that you will not be denied financial information that you are entitled to. By now, most companies that are operating remotely have figured out how to do it – what works, what does not, what level of staffing is needed, where cuts can be made. So, while your business partner may have had a very good reason for not wanting to “deal with you” during the crisis-mode of March and April, those reasons ring less true now that we are getting into the summer months. If your requests for information are falling on deaf ears, it does not necessarily portend a problem. But it might. Critically, the more you press for information, letting your business partner know you are watching the business, the less the temptation may be to take advantage of you.

©2020 Norris McLaughlin P.A., All Rights ReservedNational Law Review, Volume X, Number 182

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About this Author

David C. Roberts Member  New Jersey fraud, fraudulent transfers, trade secret, restrictive covenant litigation, employment litigation, environmental matters, and insurance coverage litigation.
Member

David C. Roberts, Co-Chair of the firm’s Litigation Practice Group, devotes his practice to handling complex commercial litigation matters, such as fraud, fraudulent transfers, trade secret, restrictive covenant litigation, employment litigation, environmental matters, and insurance coverage litigation.

His practice has a particular emphasis on partnership and shareholder disputes, including oppression and dissenter’s rights cases, with a focus on attempting to resolve matters through mediation, if such an approach fits within client’s goals and objectives.  In 2007, Dave launched...

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