Paul Jacobsof Grant Thornton and Mary Brassillof McCann FitzGerald offer their advice.

In this situation, it can take several months for the financial position of the company to be determined with sufficient accuracy.

It is very doubtful whether Barry and Paddy will not be able to continue in business together. There is no trust between them, and there are a number of signs of possible financial wrongdoing. Paddy needs sufficient information from his advisors that will enable him to resolve the dispute, either in a negotiated settlement with Barry or through the courts. At the same time, in order to protect the value of his investment that remains, Paddy must ensure that the bank, suppliers, and purchasers of the apartments do not lose faith.

Paddy needs to: establish the financial position of Nelson Ltd; estimate the most likely financial outcome for the project; obtain advice on his own and the company's legal position; consider and manage those stakeholders who could be affected such as purchasers of the apartments and Impixa Bank; and develop a strategy on how he can best protect his own investment and to exit from the project and the company.

Paddy will need the assistance of a solicitor, an investigating accountant and a chartered surveyor. Barry's agreement should be sought to provide co-operation. If Barry can be made to appreciate that it is in all of their interests that the issues are resolved in a structured and organised manner, then he is more likely to co-operate with the investigation. It is important that Paddy immediately obtain legal advice in relation to his advisors being able to obtain the information that will be necessary for them to deal with all of the issues.

Paddy will not be able make decisions on how to resolve the difficulties with Barry without an up-to-date balance sheet and profit and loss account being prepared and forensically audited. It will also be necessary to perform an initial assessment why the costs of the development have substantially increased from the original budget.

It will be important to establish the full circumstances on which the boat was purchased and how it was funded. Despite the apparent "personal" nature of the boat, the funding may actually have been provided by Nelson, or Nelson's assets (such as the land) used as security for a loan provided by a bank to Barry. The accounting treatment may reveal that the company has wrongfully claimed VAT on the purchase or that the insurance cost of the boat was claimed as a tax deduction.

If Paddy ends up acquiring Barry's shareholding in Nelson, he will need to be sure that all exposures to tax penalties and interest are identified and properly quantified.

Given Canterbury's apparent deteriorating financial position, all transactions between Canterbury and Barry need to be fully investigated. All sales of apartments need to be checked to supporting sales contracts and receipt of funds through the company's solicitor's client account.

Paddy will need to obtain legal advice on: the legal position of the shareholders' agreement; the legal title of the land that Barry said was free from debt and which represented his contribution to capital; Barry's conduct as a director; and, possibly, whether there is sufficient evidence to dismiss him.

One of the difficulties in these situations is that it can take several months for the financial position of the company to be determined with sufficient accuracy. However, in the meantime the development will need to be finished, future purchasers will need to have confidence that Nelson Ltd will be in a position to complete on the apartment sales, and suppliers will need assurance that they will be paid. The company's relationship with its banker will also need to be managed properly.

Possible solutions to the dispute include: Paddy buying Barry's 50 per cent shareholding; Paddy selling his own 50 per cent shareholding to Barry; Barry and Paddy selling their shares to a third party; or Nelson selling the business followed by a liquidation of the company. Whether Paddy has the skills, resources, or desire to become a full time property developer is also a key consideration in identifying which exit option best suits his needs. In the meantime Paddy should seek advice in relation to the appointment of an external advisor. - Paul Jacobs

Paul Jacobs, a partner at Grant Thornton, is head of its forensic and investigation services unit.

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Under company law, Paddy can't abdicate his legal responsibilities and obligations as a director.

So, one of the first things he needs to do is to take an active role as director. He should demand immediate access to all books and records and have them examined by his own accountant to establish whether there has been any financial mismanagement by Barry.

Paddy's accountant should also verify the revised profit forecast provided by Barry at the AGM.

Paddy should also convene a board meeting at which he and Barry should consider the current financial position of the company and what measures need to be adopted in the short term to reduce costs, increase profits and complete the project.

Paddy should also engage a quantity surveyor to assess whether excessive costs were being invoiced under the sub-contracting arrangement between Nelson Ltd and Canterbury Ltd. If there is evidence to suggest that excessive costs were invoiced, notwithstanding that a written sub-contracting agreement was not entered into by the parties at the time the shareholders' agreement was signed, Nelson Ltd could bring a claim against Canterbury Ltd.

Barry, in acquiring the boat for his own personal use using the joint-venture company funds, has breached his legal duties as a director. Paddy should demand that Nelson Ltd sell the boat and to the extent that the original purchase price is not recouped, Barry can be held personally liable to indemnify the company for any loss incurred.

It is unlikely that Impixa Bank will seek immediate repayment of their facility if their position is secured.

In considering his options, Paddy should be mindful of the fact that he is not entitled under the terms of the shareholders' agreement to seek repayment of his loan of €1 million and the interest payable thereon until such time as the project is completed.

If Paddy and Barry are unable to work together to reach any agreement on what measures need to be taken, a deadlock may result given that Paddy and Barry have equal shareholding and voting rights at board and shareholder levels. The shareholders' agreement does not provide a dispute resolution procedure. Any dispute will be litigated unless Paddy and Barry can agree to refer their dispute to an independent arbitrator or mediator.

If the deadlock can't be resolved, Paddy may have to consider exiting Nelson Ltd by selling his shareholding to Barry. It is doubtful, that Barry would be able to raise the financial backing to buyout Paddy's interest and even if he could, it is unlikely that Paddy would recoup the full value of his equity investment in the company. As a last resort, Paddy may be forced to seek to liquidate company. If Barry is unwilling to agree to liquidation, Paddy can apply to court for an order that the company be wound-up on just and equitable grounds.

The best option for Paddy is to work together with Barry and draw on his own previous property development experience to improve the Nelson Ltd's profitability and complete the project.

Impixa Bank may seek repayment of their facility if they become aware of the shareholder dispute. On completion of the project, Paddy will be entitled to the repayment of his loan and interest payable thereon and the value of his shares in the company will have increased. - Mary Brassil.

Mary Brassil is a partner in the corporate department of McCann FitzGerald