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Minority Director/shareholder being forced out by majority of 2

Discussion in 'Legal' started by aequitas_equitas, Oct 17, 2012.

  1. aequitas_equitas

    aequitas_equitas UKBF Newcomer Free Member

    Posts: 6 Likes: 0
    Hello,

    The classic story. No shareholder agreement. 1/3 share each. The other two directors are trying to force me out with their majority. The company is almost 2.5 years old and 3.5 years in the making.

    The situation: we have a Ltd by guarantee company we all founded (social enterprise) that we trade under, however the majority of our revenue is funnelled through a Ltd company in order to pay ourselves through dividends. We sell our time/services therefore have minimal overheads/assets in the business. Most of the income after tax/expenses is paid out to the three directors as dividends through the Ltd company. We don't earn alot at the moment but there is potential for quite a comfortable living in the near future.

    We currently hold a number of government contracts, a contract with a FTSE 100 and various other smaller deals. We are one of the only players in a new market and our view is that if we get this right, we have the opportunity to create a national business.

    Initially when faced with my grievance letter, one of the other directors said we need to call it a day working together, (the architect of this situation) then he offered to resign but has since withdrawn his offer and said he has no intention of resigning. The other director will just follow anything he says. I imagine he will do the same to the other director at some point.

    They have offered to pay me my current salary until the end of the year in return for resigning and my shares. Clearly that is unacceptable to me, I have counter offered this back but have been turned down, unsurprisingly.

    The relationship is now untenable so an exit plan is unfortunately required.

    My options appear to be;

    a) Employment tribunal /constructive dismissal (I am very confident I will win - likely payment awarded?)
    b) Buyout - but not at their current offer
    c) Suing them personally for ultra-varies
    d) Not accepting their offer and keeping my share
    e) Accept their offer and walk away having learnt a very expensive lesson

    Therefore my questions are;

    1. Would it be better to simply hang on to my share?

    2. What options do they have to not pay me my 1/3 of the profits? I understand they can pay more through PAYE rather than dividends and increase salary to reduce profit/ decide to reinvest.

    3. Can they simply shut down the shell company that I have a share in (as nobody is a shareholder of the social enterprise) and open a new shell company to funnel the money through, making my share worthless?

    4.What is my best option as I feel this is highly unfair and very very wrong, what would you do in my situation?

    To add into the mix, yesterday I was taken to hospital and diagnosed with a pulmonary embolism so will be off work for at least a week if not more.

    Many thanks in advance for any replies!
     
    Posted: Oct 17, 2012 By: aequitas_equitas Member since: Oct 17, 2012
    #1
  2. Sue De Nimes

    Sue De Nimes UKBF Contributor Free Member

    Posts: 33 Likes: 4
    I went through a similar situation a couple of years ago. Unfortunately without a shareholder agreement protecting your interests is going to be very difficult.

    If you formed a company off the shelf it is unlikely there is anything regarding dividends in your M&A other than "at the discretion of the board" or similar.

    They can't pay dividends to themselves without also paying you. (There are some rare exceptions to this - unlikely if you formed off the shelf). What they can do though is pay themselves whatever they want through PAYE without your permission.

    There are legal steps you can take to protect yourself IF they are running the company in such as way as it disadvantages your shareholding. The company must be run for the benefits of all shareholders. Cost of something like this is going to be £20,000 plus.

    They most likely will be able to make a solid case though for doing whatever they want.

    The long and the short of it is unless the company is turning over a lot for a £20,000 legal bill to be offset by potential gains you are probably screwed.
     
    Posted: Oct 17, 2012 By: Sue De Nimes Member since: Feb 22, 2011
    #2
  3. chuckles

    chuckles UKBF Ace Full Member

    Posts: 1,304 Likes: 225
    How can they pay themselves whatever salary they like ?

    If you hold more than 26% of the shares (which I believe you do), you have a strong position. They cannot change the aims of the company without your agreement.

    They cannot declare dividends without you and whilst you are still a director you have an equal say in the running of the company.

    They do have two votes against one on day to day decisions but not on major decisions.

    You are in a strong position but clearly there is a breakdown and the best thing you can do is to come to an agreement whilst reminding them of their obligations under company law. You can also warn them that you could look to take a derivative claim against them if they tried to breach the companies house act 2005, section 994 I believe (look this up).

    Don't just automatically assume you are in a weak position.
     
    Posted: Oct 17, 2012 By: chuckles Member since: Jun 14, 2012
    #3
  4. chuckles

    chuckles UKBF Ace Full Member

    Posts: 1,304 Likes: 225
    In answer to your questions:

    1. Yes, for the time being until you reach a compromise

    2. They have to pay you 1/3rd profit if a dividend is declared. If they try to increase their salaries and not yours, threaten them with a derivative claim.

    3. Not if you have 26% or more

    4. Try and do a deal but use your weapons above.

    Best of luck, keep us posted.
     
    Posted: Oct 17, 2012 By: chuckles Member since: Jun 14, 2012
    #4
  5. Sue De Nimes

    Sue De Nimes UKBF Contributor Free Member

    Posts: 33 Likes: 4
    As long as they can justify the salary they can. It becomes expensive to prove otherwise. I agree with your points in theory - however enforcing the rights of a minority shareholder is expensive.
     
    Posted: Oct 18, 2012 By: Sue De Nimes Member since: Feb 22, 2011
    #5
  6. EDRIAT

    EDRIAT UKBF Regular Free Member

    Posts: 101 Likes: 24
    You need to speak with Graham Ross (aka "The Resolver") - a user of this forum.

    I've used him myself to help settle a dispute with my former business partner, he (Graham) helped me out no end, I highly recommend!

    I paid him nothing like £20k! In fact, in my case, the financial benefit of the resolution I was able to acquire, paid many times over, for the cost of having Graham on my side.
     
    Posted: Oct 18, 2012 By: EDRIAT Member since: Oct 3, 2011
    #6
  7. chuckles

    chuckles UKBF Ace Full Member

    Posts: 1,304 Likes: 225
    Thats why I suggested 'threatening them'. Enforcing is another matter but you use the threat to negotiate a resolution. They would incur costs too if it went any further, so everyone (normally) wins by negotiation but you have to have ammunition and the above is just that.
     
    Posted: Oct 18, 2012 By: chuckles Member since: Jun 14, 2012
    #7
  8. aequitas_equitas

    aequitas_equitas UKBF Newcomer Free Member

    Posts: 6 Likes: 0
    Thanks for all your responses. I was taken back to hospital with the same condition last night so I'm not fully able to think right now.

    Thanks for the suggestion of speaking to Graham. I had read some of his posts on here so that's great and I will.

    That's the thing, naively I was saying you can't do x y z without realising that he could by gaining the others vote.. Effectively taking over, forcing me out etc..the things that have been happening are according to my sol outside their remit of a director.

    However enforcing a code of conduct without a signed agreement is another thing entirely. If anyone has any suggestions of how I can return the favour of being unhelpful that would be appreciated.
     
    Posted: Oct 18, 2012 By: aequitas_equitas Member since: Oct 17, 2012
    #8
  9. chuckles

    chuckles UKBF Ace Full Member

    Posts: 1,304 Likes: 225
    Consider calling an EGM, raise your concerns and ask them to account for their actions. Keep it all documented.
     
    Posted: Oct 18, 2012 By: chuckles Member since: Jun 14, 2012
    #9
  10. aequitas_equitas

    aequitas_equitas UKBF Newcomer Free Member

    Posts: 6 Likes: 0
    Also to add, they are using our accountant to negotiate with me..
     
    Posted: Oct 18, 2012 By: aequitas_equitas Member since: Oct 17, 2012
    #10
  11. chuckles

    chuckles UKBF Ace Full Member

    Posts: 1,304 Likes: 225
    The company accountant ?? Isin't he conflicted, he's acting for the company, not the individuals. Unless it suits you, I would question this.
     
    Posted: Oct 18, 2012 By: chuckles Member since: Jun 14, 2012
    #11
  12. aequitas_equitas

    aequitas_equitas UKBF Newcomer Free Member

    Posts: 6 Likes: 0
    I've tried that, they didn't turn up and they are now ignoring all my attempts to contact them!!
     
    Posted: Oct 18, 2012 By: aequitas_equitas Member since: Oct 17, 2012
    #12
  13. aequitas_equitas

    aequitas_equitas UKBF Newcomer Free Member

    Posts: 6 Likes: 0
    Chuckle, he's most definitely not acting on my behalf. I intend to go direct rather than through him.
     
    Posted: Oct 18, 2012 By: aequitas_equitas Member since: Oct 17, 2012
    #13
  14. aequitas_equitas

    aequitas_equitas UKBF Newcomer Free Member

    Posts: 6 Likes: 0
    Can anyone give any more advice please?

    I raised a formal grievance last week, the meeting arranged to discuss the situation wasn't attended by my co - directors. I'm being ignored with all forms of communication. We have a key contract review next week that I can't ascertain the exact date for. Plus, Since tues ive been off with a blood clot on the lung making me easy to ignore as we do not have an office.

    This whole thing has been constructed by my co- director. He has been overpaying our other co-director all year without my knowledge and refused to deal with it, and has given her another raise. The other director is mainly an administrator, has had wild expenses due to spending time correcting records she did not keep initially. I raised concerns about these issues and have been ignored, since then it's become two against one. Majority rule. There are other things that have been done that I disagreed with, such as the fee for another key contract (underpriced and then location changed considerably) again have been ignored. I am being constructively forced out of my own business.

    This all appeared to start within days of informing them I was 6 weeks pregnant in April. Since then I've been marginalised. I miscarried at 13 weeks in june the day after a big argument between the three of us.

    Things have got steadily worse since then.

    They want me to resign and give up my share and get until the end of the year. Clearly after 3.5 years and a business with potential I don't want this but I know I need an exit strategy.

    What can I do to get the best deal for myself? Many thanks.
     
    Posted: Oct 18, 2012 By: aequitas_equitas Member since: Oct 17, 2012
    #14