Directors Dispute

[Thekeeper]

I need a bit of help. I have a business with my ex-husband we are both directors we own 50% each share in the Limited business. I am the company secretary. We got divorced 2 years ago and have worked together but it has been very hard as he is a very dishonest person he draws a wage for very little work and sells off items that belong to the company without my permission. Today he sent me a text saying that he wanted me to buy him out he wants 80K. He said if I do not accept this he will be seeing a solicitor to voluntary wind up the company on the grounds that he can't work with me any longer, this is because I am cramping his style and stopping him systematically raping the company. He said the solicitor will then appoint a company to divide the company assets equally. Is he entitled to do this? I am going to try to buy him out if I can get the finance but if I can't can he force closure of the business putting myself and four others out of work. Thanks in advance

[CertaxBexley]

Do you have an accountant and access to the Company books?
Do you have a copy of the Company articles?
In general a 50% director cannot force the winding up of a Company without significant legal expenditure.
If you have the Company House log on code for your Company, you could actually log on to Companies House and remove him as a Director, of course Companies House would send confirmation of this to the Registered Office of your Company.

[Thekeeper]

We do have an accountant and I keep the company books with me at all times when I am not at work as I think his girlfriend who works in a bank has been looking at them on a weekend when i'm not there. If I remove him as a Director from companies house what does this actually mean to the business?

[David Griffiths]

If you have the Company House log on code for your Company, you could actually log on to Companies House and remove him as a Director, of course Companies House would send confirmation of this to the Registered Office of your Company.

Er, not quite correct. In fact, far from it.

You could log on to Companies House and file a form to say that he'd been removed as a director. A form that would be wrong.

You can only remove a director by a resolution of the shareholders (at a general meeting or a written resolution). If you give proper notice of the meeting (stating the purpose of the resolution) and the husband doesn't turn up, then you could pass the resolution, subject to what the articles say about a quorum, or any other rights of directors in the face of a resolution for their removal . Do you think that it's likely that he wouldn't turn up? Fat chance.

[Thekeeper]

He would turn up but what right do I have to remove him as a director he has as much say in the business as I do. I know he hasn't put any effort into running the business since we split but when all is said and done we are 50/50 partners can I get rid of him that easy and what about his shares? he wants 80k I dont know where he gets the figure from seen as its never been valued. I am also reluctant to take out a loan which I will have to use my home as security in the business climate at the moment.

[David Griffiths]

Did you take legal advice on your divorce? If you did, then I am astonished that you weren't advised to enter into a shareholders' agreement to govern your future dealings with each other in the company, and to provide a mechanism for the resolution of disputes. That's good practice at the start of any business relationship through a company. When that relationship is between two people who are divorcing it seems to me to be evident that the potential for disagreement is, shall we say, slightly enhanced.

If you did take legal advice and weren't advised to draw up an agreement, I personally think that the advice was negligent. If you were so advised but chose to ignore it, that's different.

Most agreements contain a system to get out of a 50-50 shareholding. That can range from provision for binding mediation through to how offers will be structured. One system involves both parties making a sealed bid - the higher bidder buys the other shareholder out. Another system involves one party making a bid to the other. The receiving party then chooses whether to sell or buy at that price.

You have a couple of choices. If you were negligently advised, seek recourse for that. If you are doubtful that the company is worth £80k call his bluff by telling him that you will sell to him for that price.

Otherwise, suggest mediation

[Thekeeper]

When we divorced we did not take any legal advice about the business, yes wrong I know but there you go. I sorted the divorce he got the house in spain, we sold the house over here I got most of the money from the sale and purchased another property for me and my daughter, the business was not involved in the split because we were both going to run it. Obviously its not as easy as we thought it would be stupid I know. He has no intention of buying me out as he doesn't want me to benefit in any way as he feels I have had enough already. I am going to get the business valued and see where I stand then. Thanks

[David Griffiths]

Best of luck! :)

[mahutchinson]

There are actually several ways a director can be removed without shareholder intervention and these are outlined in Table A, including the rule on directors not turning up to board meetings for 6 months. The company's articles may add others too.

[Thekeeper]

Mike I dont know if you are an expert but I need some Info quick. He has now asked me to pay him 80k for his half of our business or he is going to put the business into voluntary liquidation he wants to shut it down even though he wont get a penny. He had his car stolen we think it was his doing so that he can raise some cash to buy a van and start again, I have 4 other people to worry about here besides myself and daughter I'm very worried about the way things are going. Thanks in advance if you can help us.

[mahutchinson]

He doesn't actually have authority to do anything without agreement from the board , (i.e. both you and him as directors). I can't help you with the practicalities of dealing with this as I am not a lawyer but perhaps Antonia at Lime One can help.

[Free Lance]

The good news is that he can't force the voluntary liquidation of the company - he doesn't have enough votes at shareholder or board level. The decision to wind up voluntarily must be made by the shareholders by a 75% majority: which he doesn't have.

There is one (expensive) route for him to take if he truly wishes to go through with the winding up. If there is a complete deadlock then he can apply to have the company wound up 'if it is just and equitable' to do so. It's a pretty extreme measure and the court would be unlikely to grant the order if there was a genuine way to buy him out at a reasonable price.

The bad news is that the threat of a winding up order is quite powerful - once the process has begun - before a court hearing in most cases - the winding up petition is advertised. That leads to all sorts of trading problems, especially if the bank has any security over the assets of the company - it will call in the security.

An application to wind up on the just and equitable ground is extreme and expensive. It sounds like he doesn't have the cash. Take comfort that he cannot pull the rug from under you. Take advice sooner rather than later.

[Thekeeper]

Free Lance

Thank you so much for the information it was very helpful, I am going to the bank Monday to see where I stand as to buying him out I do have equity in my home if I need to use it. I will then speak to him about getting the business valued and see how we go from there.

Thank you again my weekend will be far better than I thought it would be when I woke this morning.

Karen

[David Griffiths]

Have you had the company valued properly? Most people sellling shares have a fancifully high opinion of the true value of the company.

It's not possible to say if the valuation is realistic, but it's a fair guess that it's too high. If you would like an opinion on this, with discounts from the valuation because there is a 50-50 split, PM me.

I can't promise that the valuation will be less than he's asking, because we have to accept the figures available. However it's a fair bet that he's asking too much. No charge. Honest! :)

[ISBee]

I wish you all the luck, as when things are unfair and you don't have share holder agreements etc, its all a pain but I agree with most of the posts that he can't do much and it sounds like you have the stronger will to see things through, and fairly too.

I split from my co-director and on a £250k turnover company earlyer this year as it was just not working out after we had merged our two little business into a much larger IT support company two years before hand. I offered my ex co-Director £40k in the form of a loan from the Bank and took on a bit of debt from the old company also (£10K) and split the clients 50/50 with me taking all the Internet style services side (which I know). We both trusted our accounant and he worked out the split and a letter for us each which was the agreement, then I resigned after 3 months once I had moved my share of cleints and was setup and running in the new business.

The only thing I can say is it took a bit longer than I wanted. Bank paper work and agreements can't be rushed so take your time and don't fast track to much as some things you may not be able to go back on, so don't get pushed untill you fully check things out. A lot of people think they know the business in's and out's of these types of actions, but its not done that often in my view to know all the problems and each case will be so different, so you need as much outside input from different people and business people you can trust, before you pick an direction to action.

Again, I wish you all the best of luck!

[David Griffiths]

. If you would like an opinion on this, with discounts from the valuation because there is a 50-50 split,

Just to clarify this - it means that a 50% stake in a company is not necessarily worth 50% of the value of the company as a whole. In general, the smaller the shareholding, the lower the relative price per share.

[The Dispute Resolver]

Although it may not be likely he will fund any action to wind up on the 'just and equitable' rule, it would be wrong to sit back and carry on. You would only be building up the company to a higher value for him to share in as a 50% owner on any future sale etc. Best sorted out now. Sensible to mediate- I can help you in that regard. I can also put you in touch with someone who is an expert valuer to the court in these sort of business splits. Sooner the better.

Difficult to say without knowing the nature of your business but if it is service/knowledge based and has little in the way of highly valuable assets, it may well also of course be the case that liquidation is not necessarily a bad route to go down especially if creditors can be paid and it sets in motion events which lead to a situation in which your clients end up preferring to do business with a different business in which he is not involved but you are. You criticise the ethic, if not the legitimacy, of some of his dealings which may give you a wider scope for solutions.

[Achenstrasse]

I'm responding to Timekeeper because it raises the question about removing a director. Co house accept any form submitted IN GOOD FAITH. Therefore you can submit form 288b to remove your Co Director immediately BUT this breaks Company Law. You'd think that Co House wouldn't be party to an illegal act but in effect they are. Even if your "ex" director tells them he's been illegally removed they'll not reverse the situation. Your Ex would have to take legal action against you! That would take some time. I Know! If you are desperate to protect yourself then, & I know 2 wrongs don't make a right, I'd submit the form removing him, then tell him that you've done it. You may have broken the Law but until he takes legal action against you to reverse the situation you are in control of the Co.
I'm in a similar situation. I WAS a director of a small company. There are 3 shareholders all have exactly the same number of shares. The Co was set up in 1993 & there have never been any board meetings of AGM's. One Director & Shareholder "A" removed me as the only other director by submitting form 288b to Companies House last year . He did not call any meeting or give me notice so I believe he acted illegally.
He then appointed shareholder "C" as director without telling him!
Now "C" has had a letter from C House threatening to strike off the Co because it hasn't filled any returns or accounts since 2004!
"C" & I want to remove "A"as a director. The Co Sec is actually another company (not a physical person) which "A" also has stolen control of.
I know that we have to give him 28 days notice before we remove him but do we have to have a "physical" meeting after 28 days. The problem is I live in Austria, "A" lives in Leeds & "C" lives in London.
Can we remove him by "C" & I just writing to him, telling him why we as majority shareholders want to remove him, then wait 28 days before submitting the forms to Co House?
I don't want to muddy the water with too many facts but this is only one company of several that "A" has removed me as a director & stolen shares from me to give to his girlfriend thereby gaining(illegal ) control of companies with fairly substantial assets. I do have a solicitor preparing papers for court action but as we all know it takes some time to get cases to court & "C" & I have to get dthe missing documents to C House urgently otherwise the Co will be struck off & , we are told, the assets transferred to the Treasury. The Co has one asset worth about £400,000 & the only debt is about £50,000 which it owes to "C"who lent the Co money to buy the asset(a piece of land).
We therefore need to act immediately. So, the bottom line is can we remove him("A) by post or do we have to all meet up? In asking this question Timekeeper may gain some useful advice as well.

Achenstrasse

[Thekeeper]

I think you need to post this question yourself and see what people come up with. Yours seems more complicated than mine but good luck with it.

[Thekeeper]

Have you had the company valued properly? Most people sellling shares have a fancifully high opinion of the true value of the company.

It's not possible to say if the valuation is realistic, but it's a fair guess that it's too high. If you would like an opinion on this, with discounts from the valuation because there is a 50-50 split, PM me.

I can't promise that the valuation will be less than he's asking, because we have to accept the figures available. However it's a fair bet that he's asking too much. No charge. Honest! :)As I have only just started to get the ball rolling on this I have not as yet had the valuation of the company. I am going to the bank on Monday to test the water on getting a loan. If they dont laugh me out the door I will then put it to him that I am going to get the company valued. I am now sick of just waiting for him to keep threatening me with closure that I am going to make a move to get rid of him.

[Thekeeper]

Although it may not be likely he will fund any action to wind up on the 'just and equitable' rule, it would be wrong to sit back and carry on. You would only be building up the company to a higher value for him to share in as a 50% owner on any future sale etc. Best sorted out now. Sensible to mediate- I can help you in that regard. I can also put you in touch with someone who is an expert valuer to the court in these sort of business splits. Sooner the better.

Difficult to say without knowing the nature of your business but if it is service/knowledge based and has little in the way of highly valuable assets, it may well also of course be the case that liquidation is not necessarily a bad route to go down especially if creditors can be paid and it sets in motion events which lead to a situation in which your clients end up preferring to do business with a different business in which he is not involved but you are. You criticise the ethic, if not the legitimacy, of some of his dealings which may give you a wider scope for solutions. If we go down the route of liquidation does that not affect my future credit facilities as in it would be near on impossible to get any?

[Chris Ashdown]

Whilst I admire you for wanting to continue and look after your employees, why not set up a copy ltd company of your own, prepare for the worst and have details of all accounts supliers etc, so that if he does close the company down you are in the position to take over

You could buy the assets from the liquidator very cheaply and save yourself 80K

If fact as you are unlikely to have a contract of employment there is nothing to stop you starting up in competition straight away

[Thekeeper]

To be honest the things that I have been finding out the last few weeks I think he is doing that very same thing at this moment in time. Machinery is missing steel stocks are going and he has been doing work for people he calls his"friends". I could have him struck off as a director for the things he has been doing I am sure theft would be enough and not working at the business he gets a wage for. But you try to keep the peace and work together and its not working anymore. Thanks for the advice I may just end up going down that route but its very daunting at the moment.