Avoiding Shareholder Deadlocks: What the Consystex Case Teaches Us About Governance Failures
What a $6M court dispute teaches us about governance, and how CL+C builds the legal foundations to protect your business.
Introduction
In a recent Federal Court case, a thriving $6 million business was nearly brought to a halt—not by insolvency, fraud, or external threats, but by an internal shareholder deadlock. Entama Enterprise Pty Ltd v Consystex Pty Ltd [2025] FCA 468 is a cautionary tale about what happens when governance documents fail to anticipate conflict.
At Connected Legal + Commercial, we regularly help businesses avoid these very scenarios by designing clear, commercially sound shareholder agreements that do more than tick boxes—they protect business value and continuity.
Case Snapshot: When Success Isn’t Enough
Consystex Pty Ltd was a profitable concrete formwork business with over 1,200 clients and 40 staff. Its two equal shareholders and directors—Mr Villaescusa and Mr Tsihlis—had built the company from the ground up, each taking responsibility for distinct aspects of operations.
But when their relationship deteriorated, disputes over finances, access to company records, and payment authorisations snowballed into Federal Court proceedings. The defendants even sought the appointment of a receiver to sell the business.
What the Court Found
The Court declined to appoint a receiver, finding the company remained solvent and functional, despite serious internal friction. Still, it recognised the risks posed by the breakdown in trust and imposed tailored interim orders to preserve transparency and value.
What stands out is that many of these disputes could have been pre-empted by better governance design.
Governance Drafting Failures (and How to Fix Them)
1. No Deadlock Resolution Mechanism
Without a deadlock clause, 50/50 owners are trapped in endless stand-offs.
Fix: Include mediation/escalation clauses, buy-sell mechanisms, or a tie-breaker director.
2. Imbalanced Control over Finances
Mr Tsihlis had sole access to the bank accounts and MYOB software—a structural flaw.
Fix: Require dual signatories or shared access, with limits on transaction amounts.
3. No Rules on Related-Party Dealings
Disputes about payments to associates and the fairness of those arrangements led to mutual mistrust.
Fix: Require unanimous approval for related-party loans or contracts.
4. Lack of Independent Oversight
The business had no CFO, no independent director, and no mechanism to obtain objective legal or financial advice.
Fix: Consider appointing an independent non-executive director or adviser to act as a circuit-breaker.
5. No Exit Strategy
Neither party could force a resolution or exit when the conflict became unworkable.
Fix: Include options to trigger a buyout, forced sale, or third-party valuation when trust breaks down.
Lessons for Business Owners
This case is a stark reminder that even healthy businesses are vulnerable when their foundational documents lack strategic depth.
If you’re starting a business with a partner, or already in one, now is the time to review your shareholders agreement and governance policies.
How We Help
At Connected Legal + Commercial, we help founders, directors, and investors protect their businesses from the inside out. We draft modern, commercial shareholder agreements and corporate constitutions that reduce friction, preserve value, and keep operations on track—especially when relationships get tough.
Contact us today to find out how your agreements measure up.
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