Left holding the baby, any advice?

[dwc]

I have been a director of a company that has traded for over 6 years. I had two other smaller shareholders who were also directors and employees of the company. We were involved in raising finance to undertake a large TV project. It took time to raise finance for the first 25% of the project (13 of 52 episodes) and in that time none of the three directors were paid, debts at the bank were backed by personal guarantees but because we had had success in raising the money for the first 13 episodes, and had secured committments for most of the rest of the series, we were advised by our accountant that we could continue to trade.

Our bank then called in our guarantees. I immediately said that I would cover £150k of the £250k needed to pay the bank and repay all creditors, £50k of which would go to the bank to pay one third of the money due to them. My co-directors confirmed to the bank that they would pay £50k each. Both co-directors resigned as directors, one resigned as an employee, and then within a week, they took over £30k of equipment, all the production assets (files, tapes etc.) and our key customer and set up in business to finish off the last 10-15% of the 13 episodes.

I paid in the money I said I would, as did they. I sold whatever I could and made sure priority creditors were paid off and that as many other creditors were paid in full as possible. However, I had hoped to sell the £30k of equipment to be able to pay the last remaining creditors and then to wind the company up.

I have invested over £230k into the company - my former co-directors did not invest until the payments to the bank to clear their guarantees (we had agreed to treat them as investments in the company that repaid the bank loan). I am now left without a business whilst watching my former co-directors take over the entire project with our former client including the commitments from other funders. I am without the equipment I could have sold to repay the last remaining creditor to have a clean sheet. However my company does have a contractual interest in the project that guarantees the first £40k from 100% of sales of the first 13 episodes and recoupment of another £80k from 20% of sales, so there is some potential value.

I would like to consider a members voluntary liquidation, but find that the company is not solvent at this time without either further investment (probably from me) and/or recovering the value of the equipment that was taken. Investing more into this company is not good for my health! And suing my former co-directors for the equipment will be costly without certainty of outcome (they claim the equipment was purchased to produce the 13 episodes and this owned by the client who has colluded with them, though I have the receipts and bank statements to show it was paid for by my company and there is no reference to equipment in our contract with our former client).

My questions (this has been quite therapeutic!):

* Should I sit tight and hope money flows back from the project?

* Should I go to the Insolvency Service to report my former co-directors and ask them to intervene? (Do they offer informal advice?)

* Should I go to an IP and let them handle it all?

* Should I do a voluntary arrangement with remaining creditors to move their liabilities to my new company (preference shares or something)?

Either way I don't want to incur unnecessary additional costs or lose the contractual rights in the project, which could amount to substantial future revenues if it is successful.

Thank you for any advice.

 

[dwc]

I guess I'll have to work this out myself! Thanks anyway, it was mildly therapeutic writing it down!

 

[i.m.]

Sorry, I have just seen your post for the first time.

It seems to me that your former directors are clearly in breach of their fiduciary duties in that they have diverted a business opportunity to themselves and have avoided liabilities. They also appear to be good targets in that they may have funds.

The question for you is whether the business would indeed be viable if you could sort out this important sideshow. If you have an interest in the success of the episodes then administration looks like an option, with an administrator set up to tackle the issue of your former directors. I think the worst thing to do is your first bullet point which is akin to doing nothing since, absent control, you cannot influence; the intervention of the IS also suffers from a loss of control and takes time and attention away from the matter in hand - kind of an abdication of responsibility. It's a combination of the last two options, via an admin, that might work, but you or the administrator need to tackle the former directors.

Best

BR

 

It certainly seems to me as if the other 'directors' are not playing fair, or maybe even legal.

I would go talk to someone professional as soon as possible, to assess options.

Someone on here who might well be able to give you specific advice is Antonia@Limeone (a member on here) - she has been excellent in the past and is always ready to listen.


HTH
Mark

 

[bovine]

im not a legal person, but it does sound like they have done a number of illegal things- theft of company equipment and theft of data. Definitely get legal advice and dont wait for the money to come in. If they have treated you this poorly so far, they will find a way to wiggle out of paying you.

 

[dwc]

Great stuff - all it needed was a gentle reminder!

Is there a handy reference point to find out what an administrator is/does? I thought the IS was the same thing in my ignorance!

MANY thanks for your input, very useful.

 

[i.m.]

I would just to a google search for insolvency practitioners and you will find out all sorts about administrations because it is one way that IPs promote themselves by selling their ability to "do" administrations. If you really are getting into it, take a look at what is almost the trade association website - www.r3.org.uk.

 

[Stonelaughter]

I would advise you to immediately take professional legal advice. This sort of thing cannot be sorted out by a few of your mates on a forum I'm afraid; the Law involved is complex and involved and only a qualified, insured legal professional is suitable to advise you fully on this.

 

[The Resolver]

The answers to all your questions is 'no - at least not yet'. If you ask 'should I try first to negotiate through a neutral intermediary ' (mediation) then the answer is a resounding 'yes'.


Administration is a good way to ensure the remaining creditors gain almost nothing. So they also have an interest in a negotiated solution. You say that the company;s remaining creditors can be paid out of the sale proceeds of the equipment, That equipment cost, or you value at, £30K so the creditors amounts to less than that. The fees charged by an administrator will soak up most of the monies and produce little if anything for the creditors. You will be spending loads of your unpaid time doing no more than feeding the vast growing army of administrators.


As to the detail firstly I have to say, as this is a public board, that the other directors and the client (who may be identified inadvertently albeit elsewhere at some stage in the future given the issue relates to a TV series ) may well tell a different story and may well have good reason to deny the allegations being made within this thread. However in order to serve the purpose of this Forum , the allegations have to be spoken of to address your problem.


Now directors can agree to sell equipment to themselves but must show equivalent value in exchange back to the company. If there is no true value then such can be a fraud on the creditors and indeed on yourself as a minority shareholder. Here it is not only the equipment that has been lost to the company but the benefit of the contract and the right to produce the remaining episodes. However, you say they resigned BEFORE they took the equipment, which means, unless there was a board decision to do this (selling off the only remaining equipment and contract is not something director(s) should do alone outside of a Board decision), to which you were privy and able to vote, before their resignation, then they probably had no authority to even attempt it. The client may also be at risk if they knew the position as to the insolvency of the company


Your former directors argument will rest on whether they can show the client owned the equipment. You say the company paid for it and did not contract with the client for them to own it, and thus will own it unless it was agreed by the directors to transfer. Maybe they will say they agreed with the client to give it to them in return for not being sued for failure to complete the series. But you as director ought to have been involved in such discussion and decision. If this is the explanation then they are still back to a risk of fraud on creditors since it will be seen that, at a time of insolvency, they have preferred one creditor (their customer with an unliquidated claim to damages for breach) over the other creditors by removing the last assets.


Mediation should be tried first. There are many interests that are all best served by a negotiated outcome. Your former directors are most at risk for the reasons above. The remaining creditors stand to gain because otherwise they gain zero (whether they do nothing or allow an administrator or the OR to soak up what little funds there are by just providing bean counting reports and lists. In my experience no OR or administrator will pay to sue to recover the equipment/contract if there are not the funds in the company to pay for it). The client stands to gain protection from being dragged into the mire as well as further delay. You stand to gain of course by ending this headache and being able to either continue with the client or make a fresh clean start.


I am a retired solicitor and commercial mediator and run www.TheMediationRoom.com. As well as myself I have a panel of other mediators and partner with the country's leading mediator trainer/provider. I can also refer you to a solicitor able to advise and support mediation before litigation. If mediation fails you can always sue or proceed down the administration./liquidation route. Nothing is lost by trying but a massive opportunity to sort out quickly and without too much cost. This should be done to try to sort out the competing interests and agree a way forward You can PM me here for a chat.


A request. The story would make an excellent scenario for a law school negotiation/mediation competition I am running at www.DontSue.net. We have just completed Round 1 and we are working on a new scenario for Round 2. May I use the basics, with changes to protect the innocent (and indeed the guilty if there are any) , for the story? Who knows the students may come up with some interesting solutions of their own! (Before anyone asks, yes of course I can use the basics anyway, but I would not abuse the Forum in this way. )

 

[The Resolver]

..and just to finish off by answering two questions that may be in people's minds:-

1. dwc could go to the police and file theft charges. But I suspect with such a complex company/contractual story that the police will simply say 'its a civil matter' and do nothing.

2. You could seek an injunction to recover the equipment to enable the company to complete the contract. However the courts tend not to grant an injunction if the damage can be put right by a payment of monies. That is the case here where the company might be able to just sue for the lost profit on the remaining programs.

 

[dwc]

A request. The story would make an excellent scenario for a law school negotiation/mediation competition I am running at DontSue.net. We have just completed Round 1 and we are working on a new scenario for Round 2. May I use the basics, with changes to protect the innocent (and indeed the guilty if there are any) , for the story? Who knows the students may come up with some interesting solutions of their own! (Before anyone asks, yes of course I can use the basics anyway, but I would not abuse the Forum in this way. )

Graham, MANY thanks for your calm, measured and thoughtful post. And apologies for only seeing it today! Feel free to use this case for anything you want - some good might come from the mess!

Update: I formally requested return of or payment for the equipment from the former Director. He replied using the letterhead of another shell company that is likely related to the client offering to sell the equipment to us... I wrote back asking who where the shareholders and directors of this new company (I'll check companies house anyway) and saying our company had no connection of any kind with that company and that I was addressing him as the former director of our company.

At the same time, I got a letter from the Client that they would not be paying us anything further. Given that we had invested around £90k (recorded as a sales advance and an equity investment) in the Sales Agency Agreement and the Production Agreement, that was a bit of a shock. The two former directors are directors of the client company with another party (I am a former director and current minority shareholder in my personal capacity in the client company - it was an investment by me).

So, not only does my company not have the equipment or payment for it, it also will not be getting the contractual payments that were agreed... short of suing them or mediation.

I am considering a CVA now to get all creditors to agree to wait so I can put sufficient money into the company to sue the former client to establish our rights and get payments and possibly sue the former director. The alternative is to fold the tent and let them get away with it. Bye bye to my £200k cash investment... not nice.

 

[noidea]

im not a legal person, but it does sound like they have done a number of illegal things- theft of company equipment and theft of data. Definitely get legal advice and dont wait for the money to come in. If they have treated you this poorly so far, they will find a way to wiggle out of paying you.

I agree. Don't burn cash on legal stuff yet... the tapes can wait

Go to the police - it is theft... by a director...