Deadlock in corporate joint ventures
Deadlock in corporate joint ventures

The following Corporate guidance note provides comprehensive and up to date legal information covering:

  • Deadlock in corporate joint ventures
  • When will deadlock be an issue?
  • When does a deadlock occur?
  • Resolution of deadlocks
  • Chair's casting vote
  • Outsider's swing vote
  • Escalation
  • Mediation, arbitration or expert determination
  • Transfers of shares
  • Voluntary liquidation

A joint venture in which two joint venture parties each own 50% of the shares of the joint venture company (JVC) is sometimes known as a deadlocked or deadlock joint venture. In such a joint venture, the joint venture parties must reach agreement on any decisions to be taken by the JVC; if they cannot agree on a certain course of action, the action will not be taken ie the status quo will be maintained.

When will deadlock be an issue?

The structure and management of a 50/50 joint venture will usually reinforce the deadlock position, eg:

  1. each joint venture party will be able to appoint an equal number of directors to the board

  2. the joint venture parties will take turns to appoint the chair of the board and the chair will not have a casting vote

  3. each joint venture party will have equal voting rights, both at board and shareholder level

  4. advance notice of matters to be discussed at board and shareholder meetings may be required to be given to each joint venture party or its representatives, and

  5. the quorum provisions may require representatives of each joint venture party to be present at board and/or shareholder meetings before they can take place

Importantly, a joint venture party should not be able to prevent decisions being taken by deliberately remaining absent