Other director ceased communication and started a rival company

[GSC]

Hi everyone,
Now I think this is a complicated one but I’ll try and keep it as short as possible.

I’m a director and 50% share holder along with another director and also 50% share holder.
Our business has started as a joint venture from two existing businesses. Mine being the much larger and longer established and as a sole trader.
To save the complications of combining our assets we agreed that my company would undertake all work from the newly formed joint.
Basically as a trial period to see if it would work and the joint business benefitting from the running start of having full use of my premises and all machinery until it was decided whether it was viable or not.

It turns out it was not and I stupidly invested my personal money with promises of the same in return but never happened.

I eventually set a termination date after so many more chances than I should of given it. This date was when the last work was scheduled for completion.

Unfortunately before that some conflict about payment to suppliers, hmrc and utilities had arisen. He didn’t seem to care about those issues as much as I did. Many I assume because I was responsible for them through my original business as a sole trader.

He has subsequently removed me as admin to all social media accounts. This was where nearly all of our customer leads came from. I’ve also been removed from access to my email.
Since the social media displays his mobile number as well, I’m effectively removed from all client communications.

At this time there were a few jobs nearing completion that he was managing. The last time we talked I’d made it clear these were to be paid into our account and used to pay debts.
He’s ceased communicating since and I only presume has had those payments paid to himself.
After contacting the customer’s due to be started I’ve now found out he’s explaining some story of he had to get away and he’ll be working for them via his new company.

At the same time he started a new business and on social media has claimed our work as that of his new company.

If all that from someone who’s meant to be a friend he’s made very untrue allegations via a solicitor and very easily proven to be so.

So anyone any idea where to start. Bare in mind the joint company has financially ruined me and I’ve nothing but texts confirming his responsibilities to repay for the share he owes.
I’m completely stunned by this to be honest, I put my trust in a friend and I’m surprised that he decided this was a good idea.

Any advice appreciated
Thanks

 

[ChrisCallaghan]

I feel the simplest path to take would be to resign as a director from the company at this point.

Terminate an appointment of a director (TM01)

Use this form to terminate the appointment of an individual or corporate director.

www.gov.uk

You could explore attempting to liquidate the company due the debt position, however it would be tricky if your co-director is no longer communicating with you, and would also be costly.

Sadly we see 50/50 director dispute issues quite often here on the forum, and often there isn't a simple fix solution.

@The Resolver often comments on these threads with his expertise and advice, and may be along shortly to add his thoughts.

 

[Lisa Thomas]

I'm a bit confused.

Are there now two companies? A and B? Can you explain the position for each.

Is A the old, and now insolvent company, and B is the one you have been kicked out of?

 

[Newchodge]

Can you just confirm that the businesses are Ltd companies. You state your business was a sole trader.

 

[IanSuth]

I read it as

Sole Trader A

Creation of LTD A (Directors Mr Sole Trader A and Mr B) that subcontracted work to Sole Trader A (which also incurred expenses/liabilities through that arrangement)

Mr B has done a flit cutting off electronic access of Mr Sole Trader A to LTD A's accounts and they direct to Mr B

Mr B has formed a second company (dont know if ltd or as sole trader) and is taking payment for work carried out by LTD A plus reputational credit for past work in advertising of B

No company has been said to be entering liquidation/administration yet

 

[The Resolver]

At this stage do not resign as Director of the joint company. If you do you lose all rights to information/access to accounts etc as well as power to take action in teh name of the company . The other Diirector is clearly in breach of his duties to take steps to help the company succeed in business (removing work) . Legal action (but which should be avoided in favaour of negotiation) would llikelly result in him having to compensate the company for all losses attributed to his actions.

When you say the arrangement was that the work would be undertaken by yourself as sole trader from your premises, do you have documentary evidence that supports that agreement? An email exchange would suffice. Was the new company the supplier to the clients ?

More than that I need more information to advise. Book yourself in to a free chat with me (see link below)

 

[GSC]

I'm a bit confused.

Are there now two companies? A and B? Can you explain the position for each.

Is A the old, and now insolvent company, and B is the one you have been kicked out of?

There are now 3 companies.
My original established as a sole trader.

The Ltd company with us 50/50 which my original business supplies.
This company has no assets. But I handed over all new customer leads to it and so did he.
My original business kept going and sun contracted to actually do the manufacturing side.

Now he has started a new Ltd by himself which is in direct competition with ours and has removed me from all communication with customers and claiming work done by our joint company to be that of his new one.

 

[GSC]

I read it as

Sole Trader A

Creation of LTD A (Directors Mr Sole Trader A and Mr B) that subcontracted work to Sole Trader A (which also incurred expenses/liabilities through that arrangement)

Mr B has done a flit cutting off electronic access of Mr Sole Trader A to LTD A's accounts and they direct to Mr B

Mr B has formed a second company (dont know if ltd or as sole trader) and is taking payment for work carried out by LTD A plus reputational credit for past work in advertising of B

No company has been said to be entering liquidation/administration yet

Yes that’s all correct and yes Mr B’s new company is a LTD company with himself as director and the only person listed.

 

[GSC]

I'm a bit confused.

Are there now two companies? A and B? Can you explain the position for each.

Is A the old, and now insolvent company, and B is the one you have been kicked out of?

Started with two sole traders forming a Ltd company and social media etc from both directed to the new Ltd company.

His business as a sole trader was smaller but targeted the public customers were as mine was maybe 70% ltrade supply.

We both directed new and previous customers through the joint Ltd company and since it was me who had the premises and equipment to manufacture my sole trader business was supplying our Ltd company.

He created and managed the social media for our company. I was an equal administrator also but have now been removed and since the joint Ltd company only main asset was its social media following I effectively have no access to any of those messages, emails, calls or texts now.

 

[GSC]

At this stage do not resign as Director of the joint company. If you do you lose all rights to information/access to accounts etc as well as power to take action in teh name of the company . The other Diirector is clearly in breach of his duties to take steps to help the company succeed in business (removing work) . Legal action (but which should be avoided in favaour of negotiation) would llikelly result in him having to compensate the company for all losses attributed to his actions.

When you say the arrangement was that the work would be undertaken by yourself as sole trader from your premises, do you have documentary evidence that supports that agreement? An email exchange would suffice. Was the new company the supplier to the clients ?

More than that I need more information to advise. Book yourself in to a free chat with me (see link below)

Thanks for your reply,

He has claimed via a solicitor he was denied access to accounts. That is not true at all and I have a lot of emails and text messages to prove that isn’t the case.

Basically this from what I can tell are the points on why it’s wrong for him to do this,

Setting up a competitive Ltd company while a director is obviously not in our company’s best interests.

Withholding customer payments or directing them into another account of his own

Using our companies work to claim to be that of his new one.

Deliberately removing me from all electronic communications to clients old, current and new and since I’d diverted all established public client base to our company it’s quite a substantial loss.

Yes I would have plenty of evidence to support that my sole trader company was agreed to undertake all work generated by our Ltd company.
The new Ltd company was to be a supplier to the general public something with which although I’d always done but I never felt the need to advertise and promote social media as I was more established with supply to the trades who undertook work to the public.
So the role of this joint Ltd company was a something I’d eventually agreed to as a way to give him a trial and manage that side while getting a running start by acquiring all my customers enquiriies and not having to contribute anything personally to me with regards to full use of all my business assets in exchange for a set overheads amount each week.

I’m hindsight I know I shouldn’t of but at the time I was thinking that this might be the opportunity I had been waiting for to be able to reduce the stupid amount of hours I was working.

 

[The Resolver]

As Director of the joint Ltd Co he is committing a clear breach of his duties under s172 of the Companies Act 2006

"A director of a company must act in the way he considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole, and in doing so have regard (amongst other matters) to—

(a)....

(b)....

(c)the need to foster the company's business relationships with suppliers, customers and others,

(d).....,

(e)the desirability of the company maintaining a reputation for high standards of business conduct, and

(f)the need to act fairly as between members of the company."

You have the power as shareholder to issue proceedings in court in the name of the company against him personally for a judgment that he compensate the joint company for all losses that have resulted. Every sale he makes through his new company increases the amount he willbe ordered to pay. Now you said earlier " he’s made very untrue allegations via a solicitor and very easily proven to be so." I have been doing work resolving very similar cases and cannot imagine any conduct by you short of you closing down the joint company that could ever justify what he is doing. Its vital you urgently respond or have someone respond on your behlaf to the solicitors. (I see your later referemce to a claim by solicitors that you have denied him access to accounts-which you deny- that itself does not justify him opening up in competition to the joint company).

It would seem that you probably also have a right to sue for breach of contract.

The denial of access to social media can also be seen as a breach of his duties since as Director he has a duty to ensure his co-Director has access to all key business data. There is also a technique (a little 'sharp' but not unlawful) to enable you to have him removed from being a Director which I can explain by PM or email. I have mentioned this some time back (I have been advising here for over 16 years but you may find on search ..and foor the regulars here ,no its not falsely informing Companies House that he is no longer a Director - although many people do that) ).

There is also his breach of the GDPR since I assume your customers did not agree to their data being transferred to another legal entity (his own company).

Obviously, despite those rights to sue, (and you have, from what you have said here, but I'd like to see what his solicitor said, a VERY strong case) I am the last person to suggest you actually issue proceedings in court, but you must ensure he is advised by his own solicitors of what you know about the weakness in his case to open up negotiations to resolve the matter in a lawful way..

 

[GSC]

I’m not sure why my previous reply has disappeared but I will respond again.
Thank you for your advise and I really appreciate your help. It has given me some hope that all is not lost.
I hadn’t considered things such as a breach of GDPR laws.
I am sure I am in the right with everything that has happened and have good grounds to try and negotiate and avoid things escalating.

If I haven’t mentioned it previously I should say our joint LTD company is in quite a lot of debt to my sole trader company that supplies it. Therefore with the missing payments from completed jobs which haven’t been received I am left in quite a difficult situation.
I also invested some personal money into our company with failed promises of the same in return.
I guess my only option is to hope that I can obtain legal aid to take this dispute on hence seeking advice which I very much appreciate on this forum. At this point I can not imagine us ever being able to have an amicable business relationship or close friendship again.
It appears that’s been sold out in return for me to be left with the debts and him having the opportunity for a clean slate and able to move on.
Despite that I’d rather resolve this and be amicable but my last attempt at communication yesterday was met with a very hostile attitude and instructed to only communicate via his solicitor.

 

[The Resolver]

How much is owed to your sole trader business? This gives you even further options and power - e.g. to obtain a judgment against the joint company and seek a Third Party debt order on the back of the debt against the new company for the sale proceed that he has wrongly taken. A TPDO is where when you have an unpaid judgment against someone you can obtain a court order against anyone who owes money to that person/company to pay such to you to credit against the debt . Also you have the option to liquidate the joint company with a pre-pack to buy the assets, iincluding the customer database.

You will not obtain legal aid for this sort of dispute/claim.

There are a number of options. What you need firstly is a strategy of action to put you in the lead seat from which to negotiate an outcome favourable to yourself. It is complex but you have to take the right steps. I feel sure one can be compiled that will change the other persons attitude. In company disputes those who try to take the law into their own hands realise they are making things worse for themselves. Book yourself into a free 30mn phone call with myself where I can begin to help create that strategy for you. Go to tinyurl.com/BOOKINACALL