Family Business Disputes: Common Causes, Key Cases and How to Prevent Them

Top 5 Reasons Family Business Disputes Happen

Family enterprises often blur the line between personal and commercial relationships. Common features include:

1. Longstanding Personal Relationships: Family members bring decades of history into the business. Old grievances—personal or commercial—can resurface and influence how disputes unfold.
2. Overlap Between Personal and Business Roles: There is often no clear separation between family and business roles. Decisions made for the business may be viewed personally, increasing the potential for conflict.
3. Lack of Formal Agreements: Many family businesses start informally without shareholders’ agreements, partnership agreements or documented governance structures. As the business grows, this lack of formality can create serious uncertainty about ownership, control and decision-making.
4. Complex Structures: Family groups often use multiple entities—companies, discretionary trusts, unit trusts and partnerships—without clear documentation as to who owns what or how profits are to be shared. Often these structures are set up for tax purposes.
5. Disputes Triggered by the Death of a Key Person: The death of a founder or major decision-maker often exposes issues that were previously unspoken or unresolved.

Case Study: Mir v Mir

Key takeaway

This case highlights the importance of clear documentation and proper planning, especially where multiple entities and family members are involved. It also shows the need for a clear delineation between assets that belong to the business group and assets that do not.

We have seen similar issues in a number of matters where family businesses have been conducted over along period of time and the personal assets are used in the business.
This case provides a helpful reminder to make clear what assets are and are not included in the business and highlights the need for undertake period audits of business structures to ensure that all parties have the same understanding.

The consequences for failing to address such issues can include significant legal costs and, more relevantly, distraction from the core business which impacts profitability.
Background

This dispute involved members of the Mir family and the operation of the long-standing Mir Group of Companies, a property investment and development business established in the late 1950s.

Key Facts

The dispute was between John Mir on one side, and Tony Mir and Leo Mir (representing the estate of his late father, George) on the other. There were around 50 parties to the proceedings. The business operated through a complex structure of companies, discretionary trusts, unit trusts and partnerships.

Claims

John’s position: He alleged that the Mir Group operated under an unwritten “overarching partnership” between the three brothers and sought a winding up of the group.
Tony and Leo’s position: They argued that certain land held by the J&M Trust formed part of the Mir Group and was held for the three families equally. John and his wife, Marie, claimed the land was their personal property.

Court Findings

The Supreme Court of New South Wales found that:

1. There was an agreement about how the Mir Group operated, but it did not amount to a legal partnership.
2. Profits must be distributed equally between the three families.
3. Major decisions require unanimous agreement from Tony, Leo and John or their nominees.
4. The land held by the J&M Trust was part of the Mir Group assets.
5. The Court declined to remove John and Marie as trustees, despite serious criticisms of John’s conduct.

Both sides appealed, and the Court of Appeal dismissed both appeals.

Case Study: Gillespie

Key takeaway

Although discretionary trusts give trustees broad powers, their discretion is not absolute. Beneficiaries may challenge the trustee’s conduct, and the Court will allow such claims where necessary to protect the trust and its assets.

Where family businesses are run through discretionary trusts it is important to consider who the beneficiaries are and whether the scope of potential beneficiaries is appropriate. This issue becomes more significant when there are multiple generations identified as potential beneficiaries.

When there is a trust created around a key person in a family for the benefit of their descendants, proper succession planning should consider how the trust will be dealt with upon that person’s death, namely who will take control of the trust and how they ought to administer it.

Background

This case involved a dispute between beneficiaries of the Gillespie Family Trust regarding income distributions and the handling of significant trust assets.

Key Facts

The trust was established for the family of Bill Gillespie (deceased). Two issues were raised by Robert Gillespie: (1) the way trust income was distributed over several years, and (2) how the trustee dealt with the proceeds of the sale of a Rozelle property valued at approximately $55 million.

Claims

Robert sought to bring a claim on behalf of the trust against the trustee—similar in nature to a derivative action available in company law.

Court Findings

A key question was whether Robert should be granted leave to bring the claim. The Court held that he could.

Business Litigation Lawyers Sydney and Newcastle