Directors Conflict of Interest

[toastie]

Hi All, I'm a 50/50 shareholder and co-director of a sales company. My partner and I are going our separate ways once we can agree a valuation and who will buy the other out. In the meantime, I'm setting up another company to continue to trade. I have proposed to list the current 'deals' that i'm working on, and leave those opportunities in OldCo, and also that I wouldn't seek to take renewal contracts into NewCo unless the customer requests to do so (we broker contracts for a well known company). Does this sufficiently cover me to avoid directors conflict on interests? As we are in deadlock, i'm currently unable to take any money out, so I'm effectively working on those deals in OldCo for zero remuneration at this time. NewCo will be ready to trade in two weeks time.

 

[Newchodge]

If you are still a director of OldCo you are working directly against its interests by setting up a competing company. Leaving behind Oldco's clients unless those clients ask to come with you does not give you any safeguard whatsoever.

 

[toastie]

Thanks Cyndy, are there any circumstances or form of words that can be agreed in these situations? My current business partner proposed that I setup on my own as part of our discussions on moving things forward. If things do become acrimonious, can i resolving it by simply resigning my directorship in OldCo?

 

[Mr D]

Simplest method is resign from being a director of oldco. You will lose the responsibilities and access you have now though.
You (or him) buy each other out by buying the shares. The directorship is separate and unless there is a specific agreement regarding the shares, they aren't linked to being a director

 

[Newchodge]

Thanks Cyndy, are there any circumstances or form of words that can be agreed in these situations? My current business partner proposed that I setup on my own as part of our discussions on moving things forward. If things do become acrimonious, can i resolving it by simply resigning my directorship in OldCo?

You need professional advice. His proposal may have been malicious! Resigning as a director removes much of your power in this situation.

 

[toastie]

Thank you Mr D.
I have been advised by a lawyer to resign at some stage, so that seems to be inevitable. My nervousness is that I will lose control of the bank account (dual authorisation) and my business partner can then do pretty much what he likes with the money. We have no shareholder agreement in place with the directors (us) to govern what he can and cannot do.
We are putting the numbers together to separate, but my business partner is stalling.

I suspect you'll ask why i'm not asking my lawyer. The answer being that I need to keep my costs to a minimum until I'm sure I can pay for Services rendered.

Simplest method is resign from being a director of oldco. You will lose the responsibilities and access you have now though.
You (or him) buy each other out by buying the shares. The directorship is separate and unless there is a specific agreement regarding the shares, they aren't linked to being a director

 

[Mr D]

Thank you Mr D.
I have been advised by a lawyer to resign at some stage, so that seems to be inevitable. My nervousness is that I will lose control of the bank account (dual authorisation) and my business partner can then do pretty much what he likes with the money. We have no shareholder agreement in place with the directors (us) to govern what he can and cannot do.
We are putting the numbers together to separate, but my business partner is stalling.

I suspect you'll ask why i'm not asking my lawyer. The answer being that I need to keep my costs to a minimum until I'm sure I can pay for Services rendered.

Not quite able to do what he likes.
He would still have responsibilities as a director. It would be much harder to find out what he is doing though - shareholders don't get anything like as much or as timely info as directors.

If he breaches his duty to the business the shareholders can hold him accountable. Doesn't help much though.

 

[The Resolver]

The best way to be protected from your working for NewCo is to have a shareholders Resolution passed unanimously agreeing to it and waiving any claims. You may be able to negotiate this if your co-director sees benefit in your continuing to work outside of the company.

Because of the limited information you are entitled to as a non-director shareholder, resigning now will prejudice you in your negotiation unless you have , beforehand, taken copies of all financial and trading information and bank statements.

Resigning now will not protect you against any claim fro breach of your duties as a director by trading in competition to the company in the past.

You both clearly need to be helped to agree speedily an exit for one or other. I can assist as a shareholder mediator but you must both agree to my appointment.

 

[Engage Legal]

A lot of useful advice above. You will need to tread very carefully.

Also query whether the existing lawyer could handle the matter if there is a dispute with your business partner. If the existing lawyer represents the company, he may be conflicted in acting for either director/shareholder in a subsequent dispute.

Engage Legal – we connect businesses with the right lawyers for free
*Note all posts are general in nature. If you want specific legal advice, get a lawyer*

 

[toastie]

Thanks all for the advice, If I resigned my directorship in NewCo until my issues in OldCo is resolved, does that work to remove the conflict, I would still be 50/50 shareholder in OldCo and 100% in NewCo.

 

[Mr D]

Thanks all for the advice, If I resigned my directorship in NewCo until my issues in OldCo is resolved, does that work to remove the conflict, I would still be 50/50 shareholder in OldCo and 100% in NewCo.

You would presumably not be working for newco?
And someone else you would set up as a director in it?

 

[toastie]

You would presumably not be working for newco?
And someone else you would set up as a director in it?

Hi,
I would appoint another director. If it's necessary for me not to work in NewCo at all, then I could comply with that in order to remove the conflict.

 

[The Resolver]

Given you will be 100% owner of Newco (and even if had les but still the majority) , then Nominating someone else as director would not avoid the conflict

 

[Mr D]

Hi,
I would appoint another director. If it's necessary for me not to work in NewCo at all, then I could comply with that in order to remove the conflict.

Its that you have to maintain your responsibilities to Oldco while you are a director there.