Advice needed.. A director has gone rogue.

[smithster1]

I will keep this short and succinct as I know how short time is these days.

Limited company, two directors, one in the UK, one based in China. I handle designs, sales, marketing, website, he handled production. A few weeks ago he said he is going to resign, to be honest I was quite happy, I don't feel he was bringing any value to the team anyway. Now, he handled production, so was talking with the factories. OUR COMPANY paid for molds to be opened up, molds for OUR COMPANIES clients, these molds cost between £3000 and £5000 each.. I reminded him that those molds belong to our company, as (now) my company paid for those molds. He sort of has it in his head that as he is walking out the door he can fancifully grab a few keep sakes (molds) and deal with my clients. I am unsure what his plans are, I have a feeling he may partner up with one of the factories (he is British), but he seems to think he can still deal with the customers my company brought in. Now whilst it may be true a client has free will and can go where they want, those molds, are either under license to my company or we own them outright (to be honest I need to clarify which one it is). Because in our terms and conditions on our website it states any molds are the ownership of our company and if a client wants to own them outright and take them there is x% fee to be paid of the total cost.
Where do I stand here? Obviously those molds mean repeat business and through the efforts of our company website, we have brought the custom in. It is not right that an ex director seems to think he can just cherry pick a few keep sakes on his way out. I know the issue is the distance from here to China and laws within that distance are lost.
I am going to personally contact all clients tomorrow to let them know this person is now no longer representing our company and they should cease all communications as far as their work is concerned. I am also going to contact the factories and let them know.
Where do I stand here?
Thanks.

 

[fisicx]

I’d get on a plane and go to China. If they take the molds there isn’t much you can do except take them to court. Which could cost more than their value.

 

[smithster1]

I’d get on a plane and go to China. If they take the molds there isn’t much you can do except take them to court. Which could cost more than their value.

£1200 on flights, £500 on accom, £300 on living costs.. Just to say what I have and will say in email and on the phone.
But as it stands, those molds are the property of my business aren't they, legally..?

 

[Mark T Jones]

Keeping it short hasn't gone well.

Create a clear, concise, chronological timeliness of (verifiable) events to get best advice

How strong is your relationship with customers? Telling them he has left may encourage a prove war.

In truth, I think you need a lawyer..

 

[smithster1]

Keeping it short hasn't gone well.

Create a clear, concise, chronological timeliness of (verifiable) events to get best advice

How strong is your relationship with customers? Telling them he has left may encourage a prove war.

In truth, I think you need a lawyer..

We are looking at potentially thousands here aren't we.

 

[WaveJumper]

Well sorry but if the rouge director resides in China you are going to either need to get out there and tackle him face to face, plus engage a Chinese lawyer .

What do you expect to achieve here other than talking to your customers, as you have indicated (unless you have some cast iron contracts to fall back on) already they can procure wherever they like.

The bottom line is you are going to have too throw some serious money at this, but only you will know if thats really worth it

Worth a comment from @The Resolver

 

[Frank the Insurance guy]

our terms and conditions on our website it states any molds are the ownership of our company and if a client wants to own them outright and take them there is x% fee to be paid of the total cost.

If your customers are in the UK, you may have more success in pursuing customers under the above T&C's - you need to speak to a lawyer about your position. If your customer moves to the ex-directors new company, can that be taken as your customer taking your molds....ie. triggering the clause in your T&C's.

Unfortunately, as advised by others, the only option is to take legal action against the ex-director, which is likely to cost more than its worth...

 

[fisicx]

£1200 on flights, £500 on accom, £300 on living costs.. Just to say what I have and will say in email and on the phone.
But as it stands, those molds are the property of my business aren't they, legally..?

Yes they are. But if the director walks out the factory with the molds under his arm there isn’t much you can do about it. If you were there you could go get them back.

Not even sure engaging a Chinese lawyer will help. It could take many months to resolve and you still lose possession.

 

[smithster1]

Thanks all.
I am going to arrange a video meeting with the factories and try to inform them of our T&Cs, they are an honourable bunch the Chinese business people, I am sure they will do the right thing.

 

[Newchodge]

But as it stands, those molds are the property of my business aren't they, legally..?

They may be, you haven't given enough evidence about that, but let's assume they are.

They are, physically in China. As is your (ex) partner. That is the person that the manufacturers (who presumably have possession of the moulds) all know. If he asks for them he will be given them. Then what are you going to do? In which jurisdiction will you issue the claim for their return? Or will you report them to the Chinese police as stolen?

Being in the right legally is not all that helpful in this kind of situation. You need a lawyer who understands China. That may not be easy to find.

 

[fisicx]

My wife (who understands these things) has suggested the molds may not actually be the property of the company. It all depends on whose name is on the order - it’s possible the toolmakers sold the molds to the director.

 

[smithster1]

My wife (who understands these things) has suggested the molds may not actually be the property of the company. It all depends on whose name is on the order - it’s possible the toolmakers sold the molds to the director.

But my company paid for the molds, there will be recipts, though they are in China and I need to get them back.

 

[fisicx]

But my company paid for the molds, there will be recipts, though they are in China and I need to get them back.

That may be so but if those receipts are made out to the director not the company your case is weakened.

A video call with factory won’t help if the molds are no longer there.

 

[UKSBD]

I reminded him that those molds belong to our company, as (now) my company paid for those molds.

It doesn't just become your company if he resigns as a director.

Who are the shareholders?

Just to add: When he said resign, did he mean resign as an employee or resign as a director?

 

[smithster1]

It doesn't just become your company if he resigns as a director.

Who are the shareholders?

Just to add: When he said resign, did he mean resign as an employee or resign as a director?

He has resigned as director and has no shares in the company.

 

[fisicx]

Actually resigned of in the process of resigning? Has their name been removed from CH records?

Until they have fully resigned you still have a slim hold on their actions.

 

[smithster1]

No but I have

Actually resigned of in the process of resigning? Has their name been removed from CH records?

Until they have fully resigned you still have a slim hold on their actions.

Not on CH yet but the accountant is doing this now. I have a letter of resignation stating 'from this date' which was yesterday, so form that date he cannot act on behalf of this company.

 

[Mark T Jones]

What is his side of the story? What will his defence be if it goes legal?

 

[Chris Ashdown]

Have you sorted out who actually has the molds and the factory where the molds and items are actually made
He may well just think there is northing to be gained working with you and wants to follow other area's of work

 

[smithster1]

Hi all.
I had a call with the main factory, luckily he speaks good English. He has confirmed to me that as my company opened the molds the molds will remain under our control.. I just hope he is sincere and a man of his word. I only need those molds, they are the keys to more business.

 

[The Resolver]

I take it he signed a note of his resignation and CH has been updated with his resignation. If not then, as he has no shares, you can (presuming you have the majority of shares) vote him off the Board.

If he was not a shareholder then what was the nature of his involvement? Was he an employee and paid under PAYE.? if not what and how was he paid. If an employee is there a Contract of Employment (which may contain a post employment restriction against contacting clients/conducting similar business)? ? Was he a self-employed contractor?

As others have said there are practical problems in respect of securing the moulds. The focus has to be on the Chinese company respecting and protecting your company's moulds.. It may be not just the physical moulds but your company's intellectual property in the design. In other words they could keep your moulds and still use to make your company's products, yet use the moulds to make the same products for your ex-Director. China has a bad reputation for stealing IP. You need a written acknowledgment of your company as owner of the moulds. They also need to commit not to make similar looking moulds. A refusal by them signals alarm bells.

What were the terms and conditions under which they created the moulds in the first place, Is there a document?

Cannot new moulds be created out of products made with the moulds?

I have contacts with lawyers in China who may be prepared to help. Lawyer rates in China are by and large significantly lower than here.

You need a believable threat to sue if he steals the moulds if not obtain a court injunction .

The main objective is to have the manufacturers in China sign a statement acknowledging ownership is with your company. You seem to have a good relationship with the company yet fear a double cross by your former Director. In the long term you need the IPR in the moulds and the moulds themselves be owned b y a separate company just in case this double cross results in total loss of trading risking its liquidity and the moulds being sold (by a liquidator/creditor) to the highest bidder.

Finally, would you still need someone running production? Is there not an arrangement yu can reach with him whereby he no longer is a Director but has an arrangement to still oversee production? A lot of your fears are supposition and maybe a chat will produce consensus which can then be put into a detailed contract. Consider what is in everybody's interests. This is not an uncommon situation.

t
Give me a call (see my sig for a free of charge chat) if you want me to check out a lawyer in China.

 

[smithster1]

I take it he signed a note of his resignation and CH has been updated with his resignation. If not then, as he has no shares, you can (presuming you have the majority of shares) vote him off the Board.

If he was not a shareholder then what was the nature of his involvement? Was he an employee and paid under PAYE.? if not what and how was he paid. If an employee is there a Contract of Employment (which may contain a post employment restriction against contacting clients/conducting similar business)? ? Was he a self-employed contractor?

As others have said there are practical problems in respect of securing the moulds. The focus has to be on the Chinese company respecting and protecting your company's moulds.. It may be not just the physical moulds but your company's intellectual property in the design. In other words they could keep your moulds and still use to make your company's products, yet use the moulds to make the same products for your ex-Director. China has a bad reputation for stealing IP. You need a written acknowledgment of your company as owner of the moulds. They also need to commit not to make similar looking moulds. A refusal by them signals alarm bells.

What were the terms and conditions under which they created the moulds in the first place, Is there a document?

Cannot new moulds be created out of products made with the moulds?

I have contacts with lawyers in China who may be prepared to help. Lawyer rates in China are by and large significantly lower than here.

You need a believable threat to sue if he steals the moulds if not obtain a court injunction .

The main objective is to have the manufacturers in China sign a statement acknowledging ownership is with your company. You seem to have a good relationship with the company yet fear a double cross by your former Director. In the long term you need the IPR in the moulds and the moulds themselves be owned b y a separate company just in case this double cross results in total loss of trading risking its liquidity and the moulds being sold (by a liquidator/creditor) to the highest bidder.

Finally, would you still need someone running production? Is there not an arrangement yu can reach with him whereby he no longer is a Director but has an arrangement to still oversee production? A lot of your fears are supposition and maybe a chat will produce consensus which can then be put into a detailed contract. Consider what is in everybody's interests. This is not an uncommon situation.

t
Give me a call (see my sig for a free of charge chat) if you want me to check out a lawyer in China.

Thanks.
Yes we had 50/0 ownership in the company, and getting him off the directors list is underway.
I will speak to the factory about a written statement detailing my companies ownership of the molds.
Thanks for the offer of a free call. I will consider and get back to you.
Thank you for your info..

 

[Paul Kelly ICHYB]

I’d get on a plane and go to China

That is what you have to do if the moulds have real value to your business.

You are dealing with a country on the other side of the planet where their contact has been a local. Any agreements or legals in the UK mean nothing to them.

For all you know, the factories have no idea who you are. You have to get in front of them. Ideally, get an independent representative over there (e.g. @MOIC) so you have someone who knows how it works.

All client contact should always go through you locally and then you liaise with the production side - you have build your own redundancy into your operation!

 

[Jiahua]

Hello, I hope this message finds you well. Has this matter been resolved yet? I am a lawyer based in China, and I may be able to assist you.

Additionally, I would like to confirm one key fact first: Is the molds currently still under the possession and control of your company?

To resolve your issue, there are two aspects:

1. whether the company owns the molds and whether ownership can be evidenced. You mentioned that there are clauses on the website addressing this matter. Were these clauses reviewed and agreed to by the client? Or is there an agreement about the ownership of the molds?

2. whether that director took the mold away without authorization, and the legal consequences. If the director used his managerial access to transfer, hide, or refuse to return company property, and the value exceeds RMB 30,000 , this may constitute embezzlement by taking advantage of duty.