Removed as a director and shareholder without knowledge

[Hazel19780]

Hi this is my first post so hopefully it is in the right place.

I will try to keep this brief but I started an electrical contracting business with my then partner in early 2014. I was a director and 50/50 shareholder. I did not actively work in the business but did some sales and admin, whilst financially supporting him for six months while the business was set up. When we split all stayed the same and I allowed him to run the business without an issue, expecting him to do the right thing. (I have never once taken a penny from the business)

I have recently pulled off all the information on the business through companies house and he has resigned me as a director in Jan 2015 and then this May on the AR01 Annual return it shows that he now has 100 per cent of the share capital. So it appears that I have nothing to do with the business.

I have written him a letter asking for him to provide copies of accounts, dividends issued etc within 14 days. I have also said that he has taken the shares fraudulently and I am happy to sell my 50 per cent for a reasonable offer.

I have a strong instinct he wont reply to my letter at all and will ignore it.

My question is what can I do if he buries his head in the sand and ignores my letters? It is not just the money side that bothers me but I don't want him to get away with committing fraud.

Any advice would be greatly received

Hazel

 

[Scalloway]

Do you have evidence that you hold the shares? eg a certificate.

I suspect if he buries his head in the sand the only answer is to get a solicitor involved.

 

[Hazel19780]

I have the Annual return from the year before showing 500 shares each and the original filing.

Do you know if the police will get involved for the fraud?

 

[STDFR33]

I have the Annual return from the year before showing 500 shares each and the original filing.

Do you know if the police will get involved for the fraud?

The police will not get involved.

If the money involved is worth it, I would speak to a commercial solicitor.

Be prepared, legal action can be expensive and drawn out.

 

[Scalloway]

From what I understand the police are not interested in this kind of fraud.

 

[Hazel19780]

It's more the principle of him thinking he can do what he wishes with no consequences, rather than the money involved

 

[Clare@ClarityTaxation]

See a solicitor. In order to transfer shares he would have had to ask you to sign a stock transfer form - if you gifted the shares then he would simply have kept the form on file, so he should have a copy to prove it even if you can't find the share certificate to show your original ownership.

 

[Hazel19780]

Thanks Clare. He obviously cannot produce that document as it doesn't exist. He filed on line and tried his arm, thinking I wouldn't know or care. What happens when he cannot produce those docs though?

 

[cjd]

The police will tell you that it's a private matter.

Find a lawyer and get him to write him a "Letter before Action" requiring him to return your shareholding.

If he doesn't comply then you have to decide whether it's worth continuing which will depend on the value of the company.

Has he ever paid dividends to you?

Even if you don't take further action, the problem doesn't go away for him, if the company does turn into something valuable you can pursue it at any stage and will certainly win so long as you can prove that you owned the shares.

I assume there is no shareholder's agreement?

 

[Clare@ClarityTaxation]

Shares are a personal asset, albeit an intangible one. In theory it's no different to him sending off the logbook of your car/deeds to your house and transferring ownership to himself without asking you (or even telling you). If you end up in Court you should be put back in the position you'd be in if the transfer hadn't taken place, or compensated - I'm not a solicitor so I'm hazy on the details in regard to how the Court process would work.

There are cases where shares can be transferred after you leave a company, but you should have been notified at the very least. There's a similar post to yours a few years back which is worth reading.....

"1. Companies sometimes have articles or a shareholders agreement that says, in effect, "if you leave then you must offer your shares for sale (sometime for £1) and if you do not fill in the paperwork we will do it on your behalf and hold the proceeds of sale on trust for you". Check whether that is the case.

2. If the shares have not been fully paid i.e. you have not paid £325 for them in money or money's worth (assuming they are £1 shares) then the company might be able to exercise a lien over the shares, i.e. take them back from you because they have asked you to pay them up but you have not.

3. The shares might have been consolidated. This might happen where, e.g. 100 shares of 1p each are consolidated into 1 share of £1. From the share structure that seems unlikely.

In fact, it seems very unlikely that any of 1, 2 or 3 apply - you should have received notice. Have you changed address? They only need to send you notice to the address you tell them on the shareholders register, which could be out of date."

http://www.ukbusinessforums.co.uk/t...red-without-my-knowledge-or-signature.129775/

The Articles referred to in point 1 can be downloaded from Companies House, so if you seek legal advice they should be able to clarify whether those points apply to you.

 

[Stuartb3502]

Clare's answer is a very good one. Power of Attorney by companies over shares is becoming more common, but fairly unusual in small one/two person bands. As Clare says, you can get the docs from Companies House to get checked by a solicitor if needed.

Worth noting (I'm not a lawyer) that if he has simply reported the company as now being 100% in his ownership he may have committed an offence when he reported inaccurately to Companies House. Same applies for change of directorships. If it was 50/50 share ownership he will not have been able to pass resolutions for these changes without you agreeing.

As I say - not a lawyer - but a possible avenue to discuss if you choose to get legal advice. It might be that he would wish to "correct" any such errors before Companies House "become" aware.

That all said - you may want to have a cool-headed think about what you want to achieve at the end of this. If it's just the principle as you say then you could get it corrected so that you are a shareholder and a director, but do you really want to have director responsibilities (and liabilities) for a company in which you have no control over day to day running?

So it might be that you want some kind of financial settlement for your "share" of the business or as acknowledgement of having been wronged.

Whilst doing something for the principle is admirable, at the very least you should think about settling the principle with any costs you incur being met (lawyers, courts, debt collection if needed). You can often keep these low (in my experience) so I'm not trying to put you off, but it's worth thinking through. I did a small claim last year against a company because I felt strongly about the principle. Success was not guaranteed, but I felt strongly and was willing to foot the bill if needed.

Whichever it is, you then need to consider the likelihood of getting that settlement which will come down to the strength of your position as being discussed now, but also 1) the availability of funds or assets and 2) the practicalities of getting hold of them. This is not always easy. You can read up quite a bit on this in relation to small claims by googling and a decent may give you the basics to help you make up your mind for a nominal charge/gratis.

This will depend somewhat on whether you make any claim against the other director as an individual (seems more likely in this case) or the limited company.

Stuart

 

[The Resolver]

Great and full response from Clare but as to

Shares are a personal asset, albeit an intangible one. In theory it's no different to him sending off the logbook of your car/deeds to your house and transferring ownership to himself without asking you (or even telling you).

Its not quite the same in that,unlike with the house deeds and the Land Register ,it is not necessary to submit an attested signature of the seller on the transfer document nor does the register prove legal title. Companies House is merely a notice board to which people affix details of the company's ownership and control and any changes to such. If false information is posted the mere display of that false information does not change the reality of the situation with the company. In your case, if you have not signed a Stock Transfer form (and assuming the possibilities Clare mentioned are not applicable ) thane remain a 50% shareholder.If you have not resigned as director , (and not voted yourself off the Board at a shareholders meeting) you remain a director.

Companies House do operate a rectification procedure but if he refuses to agree they more often than not ask you to obtain a court order to rectify.

I find this situation happens lot in my casework.There are often steps to take such as putting the company's accountant on notice (he then has professional issues if he knows the information being given to the public is untrue) , ditto the bank who might then freeze the account. If he has not registered under Companies House's PROOF scheme then you could file a second Return with the correct information. You should take steps as a director and 50% owner as you are - call meetings etc so he realises he does not in fact control the situation as he had hoped.

Once you approach him in the right way acknowledging his concerns with you not contributing with work as much as he does etc and encouraging some change in the future that you can both agree to and set this out in a Shareholders Agreement you should be able to avoid the often damaging effect of sending solicitors letters. But check out Clare's three situations in which he may be covered. Call me to chat further under my free 30 mn 'heads up' call.