Conflict of interest matter - please help

[DPerrett]

Hello - this may sound like an obvious query. I work for a company that has 4 directors. Two of us own 49% share in the company, the other two have 51%

The two partners with the majority share between them want to sell us to another company that they part own. We received a letter from the other company with a proposed offer.

This doesn't sound ethical - but is it legal for them to force us to sell to the other company they own?

Thanks in advance for any advice or help.

 

[The Resolver]

If they mean they intend to sell their (51%) shares to the other company then it might well be the case, subject to the Articles and any Shareholder Agreement you may have entered into when the company was formed, that they are required to give you first option, or, indeed have the consent of the 49%. There is nothing illegal as such about this (lest not talk 'ethics' which can only confuse the issue).

It may be that there's a lot of pressure on you to consent, i.e. you cannot meet the offer and they may say that unless the sale goes through they will might withdraw their financial support to the company. Context is important as ever. I don't want to encourage you to give out any confidential information here, but you are welcome to PM me for private chat

 

[MartCactus]

Hello - this may sound like an obvious query. I work for a company that has 4 directors. Two of us own 49% share in the company, the other two have 51%

The two partners with the majority share between them want to sell us to another company that they part own. We received a letter from the other company with a proposed offer.

This doesn't sound ethical - but is it legal for them to force us to sell to the other company they own?

Thanks in advance for any advice or help.

Any special requirements for a sale should be outlined in the Articles of Association. You'll need to examine them. It might provide that any sale of shares by any shareholder must be approved by other shareholders. And/Or it might require that they are first offerered for sale to existing shareholders. You won't know till you read them!!!

Its unlikely (but possible - so read the Articles) that they can "force" you to sell your shares.

s459 of the Companies Act 1985 provides some protection for minority shareholders whose interests are being unfairly prejudiced by the majority. This would likely include any sale at undervalue. However the remedy that the court decides may well be to insist that your share is sold "at fair value" (to be indepedently assessed) so it might not prevent a sale, just ensure that you are adequately compensated.

So I guess the questions are:
1) are they proposing what sounds like a fair price?
2) if not, would you be happy if such a price was on offer?

 

[mahutchinson]

Don't forget that the initial approval for the sale of the business or the transfer of the 51% shareholding would be at a board meeting where it sounds as if the vote would be split 50/50, in which case it could not go ahead. Furthermore, it sounds as if the 51% directors are not acting in the best interests of the company and in fact have a conflict of interest in voting on selling the company to a business they are involved in. The Companies Act 2006 codifies directors' duties for the first time and has very clear rules regarding directors acting in the best interests of the company. The ability of directors to approve conflicts of interest now needs first to be authorised in a private company by shareholder resolution. In my opinion, the 51% shareholders cannot proceed for these reasons.