Grill’d is a fast food empire worth more than $300 million. Its founders are now locked in a bitter, destructive court battle, from which we can gain some important lessons.

Background

Grill’d opened its first restaurant in 2004, the brainchild of friends Simon Crowe, Simon McNamara and Geoff Bainbridge. Since its foundation, Grill’d has spread its wings to over 100 stores Australia-wide.

In 2011 McNamara exited the business leaving Bainbridge holding 25 percent of the company shares and Crowe the remainder.

What went wrong

For various reasons, the relationship between Bainbridge and Crowe became strained and deteriorated to the point that in June 2016, Bainbridge launched proceedings under the Corporations Act. Bainbridge claimed that he had been denied access to the company’s books and records and that Crowe had breached his director’s duties by using company staff and resources to fund KoKo Black, a chocolate company.

Bainbridge sought an oppression order and the removal of the company’s Chief Financial Officer and Director.

In his counter-claim, Crowe sought an order for the forced sale by Bainbridge of his shareholding on the basis that the relationship had soured to the extent that the continued involvement by both owners in the business would be futile. In his argument, Crowe challenged Bainbridge’s previous decision to invest in Pizza Religion, which he considered a rival of Grill’d.

The battle has been personal and fueled with emotion between the owners. It has been before the Court several times for various interim hearings, resulting in huge expense for both parties and damage to the business.

A central issue to the dispute is the value of the company which, when determined, will inevitably have a significant impact on the finality of the matter.

The case is yet to be resolved amidst a bitter dispute, and until it is resolved, will continue to exhaust time, emotion and, of course, finances.

How could the problem have been avoided?

If Crowe and Bainbridge had been Somerville Legal clients, they probably would have had a shareholders agreement. Like most shareholders agreements, they probably would never have looked at it, until the relationship soured.

They would then have dusted off the agreement and read it, to see clear steps to resolve the dispute. It probably would have provided for one of them to buy out the other or, otherwise, for the business to be sold and the proceeds divided.

They could have avoided the bitter fight over the valuation of the business. With a Somerville Legal shareholders agreement, there would have been clear terms as to how the business should have been valued, perhaps as a multiple of annual earnings.

Conclusion

If a company has two or more shareholders, they should have a shareholders agreement, even if, like Crowe and Bainbridge they are the best of friends while the business is running smoothly.

For more information  contact Tim Somerville  or Andrew Somerville on (02) 9923 2321.