Director resignation and stock transfer form not signed

[Bybluk]

Long story short.
3 people set up a company.
Month later they had change of plans and they removed one of the directors and didn’t sign the stock transfer form, neither the director resignation, as he stayed to working at a company which works in the same industry, so would be direct conflict of interest. At that time the company was not active and was not trading.
Another director was put on board and the share was transferred to him on CH.
Another month later another director was added and a share was issued to him.
6 months down the line they realise that the director, who was taken down never signed anything.
When they have tried to contact him now - he does not go into direct contact, but they have overheated that he will try to make their life’s hard.
What is the best solution for the current directors and the company to protect themselves?

 

[fisicx]

One for @The Resolver

 

[WaveJumper]

Think as above @The Resolver is the way to go.

I assume you took no legal advice before or after the actions you have taken, did you have a shareholders agreement in place, on what basis allowed you to remove a director. Unless and pretty sure you are going to find this out the ex director is not oblige to sell his shares ......unless of course you had that written up in your SA ?

 

[fisicx]

Being a shareholder and a director are two different things. Resigning as a director doesn’t mean you have to sell your shares. Unless it says so in the shareholders agreement.

 

[DWS]

Long story short.
3 people set up a company.
Month later they had change of plans and they removed one of the directors and didn’t sign the stock transfer form, neither the director resignation, as he stayed to working at a company which works in the same industry, so would be direct conflict of interest. At that time the company was not active and was not trading.
Another director was put on board and the share was transferred to him on CH.
Another month later another director was added and a share was issued to him.
6 months down the line they realise that the director, who was taken down never signed anything.
When they have tried to contact him now - he does not go into direct contact, but they have overheated that he will try to make their life’s hard.
What is the best solution for the current directors and the company to protect themselves?

They may have removed the Director but that has nothing to do with his shares, he can still retain his shares as a Shareholder and be entitled to Dividends.
What do the Companies Articles say about this?

 

[WaveJumper]

Why do I have a feeling we already know the answer to that one

 

[Frank the Insurance guy]

As this is a new(ish) company - is it possible to close the company down and set up a new company with the correct/new shareholders?

 

[Bybluk]

Think as above @The Resolver is the way to go.

I assume you took no legal advice before or after the actions you have taken, did you have a shareholders agreement in place, on what basis allowed you to remove a director. Unless and pretty sure you are going to find this out the ex director is not oblige to sell his shares ......unless of course you had that written up in your SA ?

It was all done by people with no advice between themselves. The person who was taken off decided to stay where he was. As far as I am concerned they just used the standard model articles, but it states that any of the directors can remove another one, that’s the only thing I have seen on CH. we know that he is not obliged to do this. Hence we are trying to find a way to talk him in to sign the paperwork as he stayed to work for a company, which was direct conflict of interest and had absolutely no involvement in the current company. Or if he refuses to sell, what are the options to minimise his payouts, etc. presumably the share transfer from ch will have to be voided/reversed

 

[Bybluk]

As this is a new(ish) company - is it possible to close the company down and set up a new company with the correct/new shareholders?

It’s not as easy, as the company uses factoring facilities, insurance, etc. but doing by this as well, will this not trigger a phoenix for him to be able to dispute ? As the company name is one, but the company is trading under a different name

 

[UK Contractor Accountant]

If you have a 75% voting majority look into reclassifying his share as say A class shares with no voting rights and/or rights to dividends and surplus on winding up.

If going down this route suggest you take professional advice due to the legal and procedural complexity and potential tax ramifications and to ensure all requirements are met and the process is compliant with the Companies Act 2006.

 

[Frank the Insurance guy]

As suggested - @The Resolver is your best bet. I think he will provide a few minutes of free advice!

It may be that the easiest and quickest solution is to make the guy an offer for him to sign away his shares!

 

[DontAsk]

Month later they had change of plans and they removed one of the directors and didn’t sign the stock transfer form, neither the director resignation,

Has he actually resigned, rather than being subject to a removal that was not completed correctly? I.e., is he still, in effect, a director?

When they have tried to contact him now - he does not go into direct contact, but they have overheated that he will try to make their life’s hard.

If he is still a director then he must act in the best interests of the company.

 

[Bybluk]

Why do I have a feeling we already know the answer to that o

If you have a 75% voting majority look into reclassifying his share as say A class shares with no voting rights and/or rights to dividends and surplus on winding up.

If going down this route suggest you take professional advice due to the legal and procedural complexity and potential tax ramifications and to ensure all requirements are met and the process is compliant with the Companies Act 2006.

Thank you for the response.
Yes, we would have the majority.
Would it be able to talk about this option in depth?

 

[Bybluk]

Has he actually resigned, rather than being subject to a removal that was not completed correctly? I.e., is he still, in effect, a director?



If he is still a director then he must act in the best interests of the company.

He was subject to removal, which was done incorrectly.
He never was involved within the company. He was signed up as a director during the formation of the company, month later he decided to stay where he is and technically working for a competitor. The company only started trading 3 months later, so absolutely no involvement

 

[Newchodge]

If you have a 75% voting majority look into reclassifying his share as say A class shares with no voting rights and/or rights to dividends and surplus on winding up.

If going down this route suggest you take professional advice due to the legal and procedural complexity and potential tax ramifications and to ensure all requirements are met and the process is compliant with the Companies Act 2006.

Originally, the shares were presumably 33% each. Since then there has been a non-existent share transfer and an apparent issue of shares to a director, neither of which sound legal. It would be a lot easier to understand if the OP would stop talking about directors when they ought to mean shareholders. Shares belong to shareholders not to directors and the 2 new directors should have been allocated or bought shares, neither of which should have affected the allegedly departed shareholder's shareholding.

But I doubt there is a legal 75% shareholding in the group.

 

[Newchodge]

Thank you for the response.
Yes, we would have the majority.
Would it be able to talk about this option in depth?

Where did the shares of the 2 new 'directors' come from?
What was the original share issue - equal shares to all 3 shareholders, or what?

 

[Bybluk]

Where did the shares of the 2 new 'directors' come from?
What was the original share issue - equal shares to all 3 shareholders, or what?

I am not mixing them as directors and shareholders as they were all put up as directors and shareholder with a 1 share each when the company was set up . i think not to mess up this riddle, ill go by timings
February company registered 3 directors (A,B,C) , all Psc, 1 share each
March 1 new director (D), director (C) removed and his share transferredu to director (D). This is where the signatures are missing.
April new director (E) appointed and a new share issued. So 4 directors (A,B, D,E)
Company starts trading as of may

 

[Newchodge]

I am not mixing them as directors and shareholders as they were all put up as directors and shareholder with a 1 share each when the company was set up . i think not to mess up this riddle, ill go by timings
February company registered 3 directors (A,B,C) , all Psc, 1 share each
March 1 new director (D), director (C) removed and his share transferredu to director (D). This is where the signatures are missing.
April new director (E) appointed and a new share issued. So 4 directors (A,B, D,E)
Company starts trading as of may

3 shares from the start. The transfer did not happen so director D is not a shareholder, as they do not have a share. How was the decision made to create share number 4?

(They may all be directors but that is irrelevant. Shareholders hold shares, not directors).

 

[Bybluk]

3 shares from the start. The transfer did not happen so director D is not a shareholder, as they do not have a share. How was the decision made to create share number 4?

(They may all be directors but that is irrelevant. Shareholders hold shares, not directors).

It was agreed between A, B and D, to split the business at 25% each, as E was investing equal amount as A, B and D in the company and is employed by the company and working.

 

[Newchodge]

It was agreed between A, B and D, to split the business at 25% each, as E was investing equal amount as A, B and D in the company and is employed by the company and working.

Do you have minutes of the shareholders' meeting where that decision was made? I don't think D had a right to make that decision as they were not a shareholder. A and B held 66.6% of the shareholding, I don't think that is enough to decide to dilute the shareholding like that.

As mentioned, you need @The Resolver . It really is not as simple as getting C to hand over their shares.

 

[DWS]

So basically nothing you have done makes any difference, A,B & C still own a third of the shares without any 2 of these having 75%

 

[fisicx]

Shareholder C is still a shareholder. D and E are not shareholders.

Being a director doesn’t mean you have any shares. It’s a different process.

 

[Bybluk]

Do you have minutes of the shareholders' meeting where that decision was made? I don't think D had a right to make that decision as they were not a shareholder. A and B held 66.6% of the shareholding, I don't think that is enough to decide to dilute the shareholding like that.

As mentioned, you need @The Resolver . It really is not as simple as getting C to hand over their shares.

i have just booked a consultation with him, thanks

 

[DontAsk]

He was subject to removal, which was done incorrectly.

Was the removal effective? If not he is still a director and must act in the best interests of the company. He cannot do anything for the other company to make life difficult for you.