Deadlock Resolution Mechanism In Joint Venture Agreements

Decision making in Joint Ventures (JVs) can often be challenging, especially where there is fundamental disagreement between joint venture partners on matters that require unanimous consent. Where such situations remain unresolved, deadlock occurs, which is disruptive to business and diminishes shareholder value.

Deadlock is not limited to just 50:50 JVs but may also extend to JVs where partners have disproportionate shareholding and/ or Board seats and some identified matters require consensus of the minority shareholder and/ or its nominee(s) on the Board (Reserved Matters).

A deadlock can bring decision-making to a complete standstill. Therefore, it is in the interest of the JV partners that the JV agreement and the articles of association of the JV company contain clearly defined deadlock provisions (including on what constitutes a deadlock and the resolution mechanism). Such deadlock resolution mechanisms would of course depend upon the objectives of each