Dispute with shareholder

[NDP]

Hi guys, appreciate any advice or guidance with a current situation.

Background
I'm currently a 25% shareholder of a small business (3 other holders of 25% in the business, we are all directors). There is currently a dispute with one of the shareholders who was managing rent payments for our old office. It was made aware that a rent payment was missed and we were locked out, this holder expressed that it was paid and so I asked for proof of payment to get this resolved (around early July). Since then the holder has been more or less MIA, and has not produced the proof and so I had to ask the landlord to use the deposit and we (remaining 3 shareholders) paid the difference to terminate the tenancy (the tenancy was ending last day of July). We believe the shareholder may have not paid the rent but the rent money was sent to the shareholders account (the office was under the shareholders name).

The shareholder throughout this period expressed no concern at the fact that we spent most of July locked out and therefore unable to conduct business, the holder would pick and choose what messages and calls to respond to. I expressed that I wanted to buy the shareholders shares since they had been neglectful, the shareholder expressed that they are willing give up the shares and leave, so I sent over a Shares Transfer Form to be signed. I have sent a few reminders that the form needs to be signed but the shareholder has been totally unresponsive.

I wanted to know, if this shareholder continues to be MIA, what are our options in terms of continuing the business without her as a shareholder if she does not sign over her shares. She owns 25% which seems problematic as we cannot open a business bank account without her signing. I looked at potentially striking off the company and starting a new one but is this allowed and would we have to cease trading for 3 months?

 

[Scalloway]

You can start a new company now and strike off the old company when three months is up.

 

[NDP]

You can start a new company now and strike off the old company when three months is up.

Thanks Scalloway, so we would be able to trade under the new company and keep a similar name?

 

[Scalloway]

I am not a lawyer but in my opinion legally you could but you need to weigh up the advantages against the possibility of the missing shareholder suddenly appearing and accusing you of stealing the business.

 

[kulture]

There is nothing to stop you from convening a meeting and firing the missing director. Then with 3 directors you can control the company, open a bank account etc etc. The only downside to this is the 4th shareholder will continue to own 25% and be entitled to 25% of sny dividend

 

[Newchodge]

Do you have a Shareholders' agreement? If not you can do nothing about her shares.

A Shareholder has no duty to do anything to promote, support or run the business. You are confusing the shareholder role with the Director's role. She has fialed in her duty as a director. You should consider removing her as a director, in accordance with your company rules.

 

[Chris Ashdown]

AS a Director has a duty of care to the company, could you work out the monetary loss caused by her actions regarding the missing payment and a claim made for the recovery of this loss made by the company against her. and could this action and a small financial settlement to her make her sell up her shareholding

 

[NDP]

Hi all,

Thanks for your responses. Unfortunately, we do not have a shareholders agreement, we just have the model articles. Also, removing her as a director is not an issue.

AS a Director has a duty of care to the company, could you work out the monetary loss caused by her actions regarding the missing payment and a claim made for the recovery of this loss made by the company against her. and could this action and a small financial settlement to her make her sell up her shareholding

Chris, thanks for this. I have tried this approach, but she expressed that she is willing to give up her shares. But since then has been unresponsive to all calls and texts and we do not believe she will will respond (she has turned this situation into some personal grudge).

Is it feasible to stop trading under our current company and trade under a new one and strike oldco off in 3 months? We have no debts, we are a very small business.

 

[kulture]

You still seem to be confusing the situation a bit. You say you cannot open a business bank account without her signature. Well that is not true. You just need the signatures of directors. You can remove her as a director at a properly convened meeting.

 

[NDP]

Hey Kulture,

Thanks for your response, i remember having a meeting at Barclays and the business manager saying since we are all significant owners we all have to sign on the application which was why I mentioned it. Since i wasn't able to get them all together we didn't go ahead with it.

I assume that it won't be the case at other banks according to what you are saying

 

[NDP]

Hi All,

I guess my question really boils down to the fact that, if this shareholder is not willing to sell or give up their shares (despite her expressing that she is willing to give up her shares), is it possible to start a new company, trade under newco, stop trading with oldco for 3 months and with me and the two other shareholders forming 75% of oldco, have it struck off?

The shareholder does not seem to care about the company at all anymore, so I highly doubt there will be any backlash but I still want to be sure it is possible.

Thanks in advance!

 

[Chris Ashdown]

AS directors you cannot do anything that will harm your company, by setting up a new company you would be providing proof of your actions against the old company and also disadvantaging the other shareholder

Your only legal action is to buy her out or close down the company and then start up a new one, but make sure you go through the full rules to close it down

 

[Newchodge]

Your only legal action is to buy her out or close down the company and then start up a new one, but make sure you go through the full rules to close it down

Meaning that you cannot do anything to harm the old company, like planning on setting up the new one, while you are still directors. You can think about the new company but you cannot do anything.

What would hapen if all 3 of you resigned as directors, continued to work in the old company as employees (your 4th person would still be a director, so this would be legal), while setting up the new one. Or just 1 of you.

 

[The Resolver]

Yet another classic example of why it is sheer madness to run a limited company without a Shareholders Agreement. See here as to why. Its fairly standard for such agreements to require shareholders to give up their shares in situations like this. Without one you are left with the almost (see below) sole option of trying to persuade the other to give up his shares. This usually means a payment.

Chris is correct. If you closed down and moved the business you would be wide open to a case against you of breach of your duties to the company as directors (which the missing shareholder could institute in court under s172 and 174 of the Companies Act 2006 as a derivative action in the name of the company) and a petition against you in court under s994 CA2006 for action prejudicial to his minority interest. The point is that him not contributing effort is not a condition of holding shares and does not damage the company - it only damages the personal interests of the other shareholders.

You say he has indicated he would give up his shares. Is this sin writing? If so, then this may help defend , at least as to the amount of money he claims, any action mentioned above.

There is a feint possibility of trying to persuade a court under the Insolvency Act to exercise its powers to wind up the company under what is termed the 'just and equitable' basis. This requires establishing that the business, although run under a limited company is effectively a quasi-partnership. This refers to the business being founded on mutual trust and inter-dependency on the basis that each shareholder contributes to the operation of the business such that his going AWOL breaches the agreement to set up and run the company/business in the first place.

I think having said this that it is very much possible to reach agreement. At present it seems you have simply been asking him to help you. This needs to change. You need to make clear that his transferring the shares helps him. Does he really want to have to pay lawyers to issue court action. You could achieve your goals without giving him a clear easy pathway to the courts. The above is theory but I work by helping my clients to be smart in their discussions in a way that triggers the motivation to generate a solution. There are no generic advices here of detail since it depends on getting to understand better the absent shareholder and what are his objectives.

Call me tomorrow if you would like to discuss in more detail as to your options,

 

[The Resolver]

What would hapen if all 3 of you resigned as directors, continued to work in the old company as employees (your 4th person would still be a director, so this would be legal), while setting up the new one. Or just 1 of you.

Disaster! If all resigned, you gift total control to the 4th man over the company's operation, its funds. dividends, employment . Decisions at general meeting using your 75% majority could still risk being seen as prejudicial to his interests and thus subject to court action under s994CA2006.

Further, resigning as director does not necessarily absolve you from breach of duty if any form of planning of a business transfer took place when you were still a director.

If only one resigned to run the lifeboat company he would need the support od the others who thus become in breach.

 

[The Resolver]

Just a thought but are the directors guarantors to any bank facility or supply contract?If so that could be a weak point for him and trigger to negotiation.

 

[NDP]

Hi All,

Thank you for your comments. I guess it is clear that I cannot start a new company while being a director of the old one. We have made many attempts at negotiating her shares. The one time i managed to get her on the phone, i made an offer in which she responded "you can have my shares for free" that was in a phone call however, the call wasn't recorded so I'm asauming this can't be binding.

Once she had said this I sent over a shares transfer form which she has not signed since after sending numerous reminders. She is not responding to calls or texts, she has gone cole turkey. Not an ideal situation as we are willing to discuss things but she isn't. So if she remains cold turkey, we are more or less stuck with her?

Its not ideal for us to keep her as a shareholder as we still do not know if she actually paid the rent payment which led us to being locked out. We now believe she may have taken that money (she still has not provided proof) it would be a shame that she would still be entitled to dividends after she has potentially taken company funds (in hindsight a Shareholders agreement should have been done, we are all young (early 20s) definitely a big learning curve)

 

[obscure]

If she took the money that should have been rent that is theft. You need to inform her that, unless she provides proof that the rent was paid (or returns the money) you will inform the police/take legal action.