Director of a company being sold

Tonyfar · Jan 2, 2023

Hi guys, great to "meet you all".

I am officially listed as a director of a company, along with two other directors, a husband and wife.

The wife is the person with significant control.

They informed me just before Christmas that they planned to sell the company at the end of January, discussions have obviously been going on a while with the new buyers.

The new owners intend for me to stay on and run things.

The current owners, the husband and wife, have told me that when everything is concluded, they will give me a cheque to say thank you for everything I have done over the years.

But, no mention has been made of how much the cheque will be for, and I really don't trust them at all to keep their word.

My question is that as I am listed as a director, am I legally entitled to some proceeds from the sale or am I just relying on their word?

Thank you

Tony

Frank the Insurance guy · Jan 2, 2023

Tonyfar said:
My question is that as I am listed as a director, am I legally entitled to some proceeds from the sale or am I just relying on their word?

Are you a shareholder? ie. do you own any part of the business?

If you do not, then you have no claims on any proceeds of the sale. If the husband/wife decide to give you something, then it is entirely out of their goodwill.

If they do not give you a cheque following the sale, there is little you can do.

It is unlikely, but check your contract to see if their is anything in there that means you get a pay-out on the sale of the company.

Tonyfar · Jan 2, 2023

Frank the Insurance guy said:
Are you a shareholder? ie. do you own any part of the business?

If you do not, then you have no claims on any proceeds of the sale. If the husband/wife decide to give you something, then it is entirely out of their goodwill.

If they do not give you a cheque following the sale, there is little you can do.

It is unlikely, but check your contract to see if their is anything in there that means you get a pay-out on the sale of the company.

Thanks so much for taking the time to reply.

I will check my contract etc. but from memory there is nothing there.

If i am relying on them, I don't fancy my chances. ?

Once again, thank you.

Lisa Thomas · Jan 2, 2023

Sounds like you might be TUPE'd across to the new owner, assuming you are an employee, unless it's their shares they are selling, not the business.

Tonyfar · Jan 2, 2023

Hi Lisa, thank you for replying.

Yes I assume I'll be TUPE'd across as I am an employee.

Looks like I'll be relying on them keeping a promise.

Chris Ashdown · Jan 2, 2023

You could ask for a written contract between you and the old owners to state the amount and when it due to be paid, you are in a strong position in that without you in the company the sale would not proceed or unlikely to

Clinton · Jan 2, 2023

Tonyfar said:
The current owners, the husband and wife, have told me that when everything is concluded, they will give me a cheque to say thank you for everything I have done over the years.

Then the simple answer is to draw up a contract and get their signatures, as @Chris Ashdown says.

But, no, you're not "legally entitled" to anything purely because you're a director.

Your negotiating power is strongest while the buyer is doing due diligence. If you're a key person, he'll want to talk with you and get your assurances that you'll stay post sale. He'll even want to make that a condition of the sale ie. that you will stay of x years and continue in your current role.

That applies whether he's buying the shares or the assets.

So go talk to the shareholders and tell them you'll be happy to present the right face to the buyer, and you'll use maximum good faith to ensure the deal completes, as long as the shareholders pre-agree with you the thank you sum and sign an agreement to the effect that you get paid X if the deal completes, and that you'll get paid on the day of completion itself.

They could even structure the deal so the buyer is paying you directly on the day of completion. That way the current shareholders don't have to pay you out of after-tax proceeds. They may like that idea.

But you'll need professional advice on all this!

Talk to the shareholders. If they agree the plan, go get yourself a good lawyer, or drop me a DM and I'll introduce you to one or two.

Tonyfar · Jan 2, 2023

Chris Ashdown said:
You could ask for a written contract between you and the old owners to state the amount and when it due to be paid, you are in a strong position in that without you in the company the sale would not proceed or unlikely to

Thanks Chris

Tonyfar · Jan 2, 2023

Clinton said:
Then the simple answer is to draw up a contract and get their signatures, as @Chris Ashdown says.

But, no, you're not "legally entitled" to anything purely because you're a director.

Your negotiating power is strongest while the buyer is doing due diligence. If you're a key person, he'll want to talk with you and get your assurances that you'll stay post sale. He'll even want to make that a condition of the sale ie. that you will stay of x years and continue in your current role.

That applies whether he's buying the shares or the assets.

So go talk to the shareholders and tell them you'll be happy to present the right face to the buyer, and you'll use maximum good faith to ensure the deal completes, as long as the shareholders pre-agree with you the thank you sum and sign an agreement to the effect that you get paid X if the deal completes, and that you'll get paid on the day of completion itself.

They could even structure the deal so the buyer is paying you directly on the day of completion. That way the current shareholders don't have to pay you out of after-tax proceeds. They may like that idea.

But you'll need professional advice on all this!

Talk to the shareholders. If they agree the plan, go get yourself a good lawyer, or drop me a DM and I'll introduce you to one or two.

Great idea, thanks Clinton. I'll get proper advice. Really appreciate all the replies.

Elliot Green · Jan 2, 2023

Tonyfar said:
Hi guys, great to "meet you all".

I am officially listed as a director of a company, along with two other directors, a husband and wife.

The wife is the person with significant control.

They informed me just before Christmas that they planned to sell the company at the end of January, discussions have obviously been going on a while with the new buyers.

The new owners intend for me to stay on and run things.

The current owners, the husband and wife, have told me that when everything is concluded, they will give me a cheque to say thank you for everything I have done over the years.

But, no mention has been made of how much the cheque will be for, and I really don't trust them at all to keep their word.

My question is that as I am listed as a director, am I legally entitled to some proceeds from the sale or am I just relying on their word?

Thank you

Tony

The office of Director should not be conflated with the position of shareholders.

Tonyfar · Jan 2, 2023

Elliot Green said:
The office of Director should not be conflated with the position of shareholders.

Yeah understood.

The Resolver · Jan 3, 2023

Clinton said:
So go talk to the shareholders and tell them you'll be happy to present the right face to the buyer, and you'll use maximum good faith to ensure the deal completes, as long as the shareholders pre-agree with you the thank you sum and sign an agreement to the effect that you get paid X if the deal completes, and that you'll get paid on the day of completion itself.

Agree totally with Clinton as to offering support for the deal in return for reward. However, since there can be argument over whether what you do is sufficient in the eyes of the current Directors by way of "presenting the right face" and acting in "maximum good faith" it would be wiser to have the more objectively assessed consideration that is easily proven such as committing to continue to work for a minimum of x months. This is on the assumption the buyers want that outcome. If they don't then Clinton's suggestion is the way to go.

You should also insist that any waivers of liablity in the Sale and Purchase Agreement are granted to 'the Directors', i.e. including yourself. and not just to the selling shareholders. Ditto as to indemnities but then you would hsve to sign the Sale and Purchase Agreement for that to take effect.

Clinton said:
They could even structure the deal so the buyer is paying you directly on the day of completion. That way the current shareholders don't have to pay you out of after-tax proceeds. They may like that idea.

But you'll need professional advice on all this!

Talk to the shareholders. If they agree the plan, go get yourself a good lawyer, or drop me a DM and I'll introduce you to one or two.

Tonyfar · Jan 3, 2023

The Resolver said:
Agree totally with Clinton as to offering support for the deal in return for reward. However, since there can be argument over whether what you do is sufficient in the eyes of the current Directors by way of "presenting the right face" and acting in "maximum good faith" it would be wiser to have the more objectively assessed consideration that is easily proven such as committing to continue to work for a minimum of x months. This is on the assumption the buyers want that outcome. If they don't then Clinton's suggestion is the way to go.

You should also insist that any waivers of liablity in the Sale and Purchase Agreement are granted to 'the Directors', i.e. including yourself. and not just to the selling shareholders. Ditto as to indemnities but then you would hsve to sign the Sale and Purchase Agreement for that to take effect.

Really good advice, thanks so much. Tony

The Resolver · Jan 3, 2023

To clarofy what I said about indemnities, I was referring to the possibility that the Sale and Purchase Agreement might include indemnities BY the Sellers. In that case you would want it specified to the Sellers and not want the document to suggest they come from 'the Directors'. As I said such would strictly require your signature...so don't be pressured into signing any documents.

Clinton · Jan 4, 2023

Ol' Graham provides good advice as usual.

One caveat, to both his advice and mine (and as Graham has hinted): it may be the case that the new owner does not require your services post sale.

It's not uncommon, especially when the buyer is a competitor, or someone very familiar with the industry, that they want to flush out the old management.

Graham's "objectively assessed consideration" is a sound suggestion for purchases where the buyer requires the continued involvement of existing management. And if you're not party to the negotations between buyer and seller you've no idea as to what the buyer's intentions are with respect retaining your services.

It may be the case that he wants you out ASAP in which case you've got a completely different kind of deal you want to do with the current shareholders

?

Like, I've said before, make sure you get proper legal advice. This is more complicated than you think.

Tonyfar · Jan 4, 2023

Clinton said:
Ol' Graham provides good advice as usual.

One caveat, to both his advice and mine (and as Graham has hinted): it may be the case that the new owner does not require your services post sale.

It's not uncommon, especially when the buyer is a competitor, or someone very familiar with the industry, that they want to flush out the old management.

Graham's "objectively assessed consideration" is a sound suggestion for purchases where the buyer requires the continued involvement of existing management. And if you're not party to the negotations between buyer and seller you've no idea as to what the buyer's intentions are with respect retaining your services.

It may be the case that he wants you out ASAP in which case you've got a completely different kind of deal you want to do with the current shareholders ?

Like, I've said before, make sure you get proper legal advice. This is more complicated than you think.

Great advice again. I've spoken to the new owners who seem really keen to keep me on, in fact almost demanding it.

But, the current owner has previous when it comes to broken promises, so I was just trying to make his "promise" a little more of an obligation.

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