Can one 50/50 shareholder in a tiny limited company force liquidation?

[montmonts]

Please help me, I started a business with a partner, we had a partnership agreement (with a clause if one left they couldn't work locally for a set time) a few years ago the business changed to a limited company (in hindsight we should have prepared a shareholder agreement).

My business partner walked out of the business as I was moaning he needed to do equal hours. He walked out on all liabilities including bank overdraft, premises lease etc. He said I could buy him out. His solicitor says if I don't agree to their requests he will freeze the company bank account and force the company via the court into liquidation. It makes no commercial sense but he may be pig headed enough to do this.

Can one 50/50 shareholder in a tiny limited company force liquidation?

 

[ethical PR]

As company directors you both need to work in the company's best interests so its surprising a solicitor would put in writing an intention for your partner to do this.

If he has jointly signed any personal guarantees for liabilities he will remain liable whether he walks out or not. If you are joint signatories on a bank account I don't see how he can freeze the bank account but talk to your bank about what measures you can put on place.


There's a guy on here Carl that specialises in mediation probably worth getting in touch with him directly for an initial consultation.

 

[David Griffiths]

A resolution to wind up the company requires a 75% majority, so the simple answer is no he can't.

 

[Pancho]

So David in a small business like this with only two equal Directors are you saying both have to agree to winding up? If this is the case, it causes one of the Directors to become trapped doesnt it?

 

[OldWelshGuy]

So David in a small business like this with only two equal Directors are you saying both have to agree to winding up? If this is the case, it causes one of the Directors to become trapped doesnt it?

No because that director can also resign. This is why shareholder agreements and contracts are important.

 

[Pancho]

But by doing so, hands full control of the business to the other partner then I presume, which may not be the aim.

 

[John Cato @ Clarkmans]

A shareholder may petition the court for an order that the company's affairs are being or have been conducted in a manner which is unfairly prejudicial to his interests (section 459, Companies Act 1985)(1985 Act). The court may also make an order that the company be wound up if the court is of the opinion that it is just and equitable to do so (section 122(1)(g), Insolvency Act 1986)(1986 Act).

Why does the Solicitor say it is just and equitable to wind up the company?

 

[Free Lance]

Very briefly:

I agree it needs 75% resolution to wind up. There is a (very expensive) option of going to court to wind up the company under section 122(1)(g) but that is not really something the bad director can do in the circumstance you describe.

I wonder if the solicitor has not put his foot in it by suggesting that the other director will, in effect, cause the company to fail. The director owes a duty to act in the best interests of the company (not the precise wording but a good short hand explanation) so by openly saying that is what he intends to do then he is potentially in breach of his duties.

That puts you in a stronger position if that really is the case (I imagine it is hinted at but not that overt?) as you can go back and say, "is that really your client's intention" and if so then the company will sue him for any losses it incurs as a result of his actions and will certainly draw the threat to the attention of the liquidator if his threats are carried out.

Get some professional assistance outside of a discussion board. Good luck

 

[montmonts]

Thank you all so much, I have now been put in touch with an excellent solicitor who specialises in business law. They have agreed to deal with my side for a fixed fee.

They feel the old director's (who resigned) solicitor has made bullying threats and been trying to scare me into accepting their proposal.

I was worried that the bank will act on a director's request to freeze the account but the bank confirmed that this was rubbish. The bank will send a new mandate and will act on that after companies house confirm the old director has been removed.

My solicitor has made a proposal and we are waiting to hear back now. The big mistake in hindsight was me not realising a partners agreement is void after the partnership changed to a limited company.

I now feel I am back in the driving seat with the expertise of my solicitor and look forward to closure.

 

[Spongebob]

You didn''t make it clear in your original post that the bloke had actually resigned as a director.

This was his big mistake. You could simply have got him removed as a bank signitory as you would for any other employee who had resigned.

You are (and always were) in the driving seat. He meanwhile, is still liable under any guarantees he gave securing the overdraft and lease. Agreeing to help release him from these obligations in exchange for the surrender of his shares would be a good starting point in your negotiations.

 

[montmonts]

Sorry I meant he had walked out and given me his key, I presume he could have changed his mind. My solicitor has referred this to resigning.

 

[bp59]

Sorry I meant he had walked out and given me his key, I presume he could have changed his mind. My solicitor has referred this to resigning.

Who was this excellent solicitor? I fear I am in a similar position because my 50% co-director is threatening through advice from his lawyer to reject the previously agreed mediation terms and go for liquidation so that he can be released to mop up all of the clients.

 

[Gordon - Commercial Finance]

Who was this excellent solicitor? I fear I am in a similar position because my 50% co-director is threatening through advice from his lawyer to reject the previously agreed mediation terms and go for liquidation so that he can be released to mop up all of the clients.

This member has not set foot on this forum since 2013 unfortunately. If you need help, post a new thread explaining your issue.