Resigning as director from a Ltd. while it owes me money

[Lara J.]

I’m in a difficult situation with a fellow company director with some potential legal aspects to it and am looking for some advice.

A couple of years ago I was hired by the CEO of a company (let’s call it Ltd One) for some small consultancy work. Gradually that grew out into a more serious work relationship beyond just a bit of consultancy. I have my own limited company that I use for all my invoicing and my company invoiced Ltd One monthly for work undertaken.

About two years in we decided we needed a second limited company for a new project and together with the CEO of Ltd One and another director the three of us became directors of this new company (let’s call it Ltd. Two).

Ltd Two was initially set up for a project and in a board meeting we agreed our remuneration upon reaching a pre-agreed goal of the project. It consisted of a lump sum and the transfer of some assets to the directors at the end of the calendar year. We have signed minutes of the board meeting where this was agreed.

The project went well, we reached the agreed goal and not long afterwards the third director wanted out. He received, though not with great ease, his lump sum (but not the assets as they are not due until end of the year). As the project may have a more successful future than the original company there are considerations to close down Ltd One and focus purely on Ltd Two.

As the CEO has become increasingly erratic and I fear he may get us into legal trouble with partners and suppliers (he doesn’t believe in contracts or ethics) I want reduce my involvement. I have ended the agreement with Ltd. One that I used to invoice for my fee but am still a director of Ltd Two.

My main goals are, in order of importance:

1. Receive the lump sum rewarded after the successful project
2. Resign as a director of Ltd. Two
3. Receive the rewarded assets at the end of the year

The main challenges are:

1. Ltd. Two most likely does not have the funds to pay out the lump sum right now but is expected to have the means within a few months. I could force payment now (small claims court?) but it would likely lead to insolvency and closing the business, which is not what I want and would probably leave me with nothing.
2. The CEO is mad enough to close down Ltd. Two on a whim if he doesn’t want to pay out my lump sum.
3. There is a signed agreement on being rewarded the assets after reaching the goal. There is, however, no clarity on when they exactly become available beyond “the end of the year”. It should be written down somewhere and I have asked the CEO for confirmation but have received no confirmation so far.

My main questions are:

1. Should I resign as a director regardless or is it better to stay on until I have received the lump sum? I am concerned I’d get into legal trouble if he does foolish things and I am still nominally a director.
2. How can I get a written agreement that I will be paid the lump sum at a specified date (when I don’t know when the company can afford it) and confirmation that I will receive the assets at a specified date? If I put in the agreement “when funds become available” I know he will just flatly deny the business has the money to pay.

 

[Mr D]

2 - are you willing to enforce a contract through the courts against the company once agreed? What happens if the other director won't sign it? You say he doesn't believe in contracts or ethics.

 

[Lara J.]

I am willing to go through the courts, at some point, but I feel it doesn't make sense to do it while the company doesn't have the funds as he may choose the insolvency route. I believe that once the company does have more funds available he would be more likely to pay to get it over with.

As for signing the agreement, I want to present him with an agreement that is essentially nothing more than what was already agreed in various places but now brought together in one document and with some dates against it. If he signs it, great. If he refuses I can show that he is not acting in good faith. That might help me later on, if I need to go down the legal route.

 

[Mr D]

I am willing to go through the courts, at some point, but I feel it doesn't make sense to do it while the company doesn't have the funds as he may choose the insolvency route. I believe that once the company does have more funds available he would be more likely to pay to get it over with.

As for signing the agreement, I want to present him with an agreement that is essentially nothing more than what was already agreed in various places but now brought together in one document and with some dates against it. If he signs it, great. If he refuses I can show that he is not acting in good faith. That might help me later on, if I need to go down the legal route.

He can always choose the insolvency route if he has the shares to push it through. What is the share percentage between you?

 

[Lara J.]

Oh there is absolutely zero question about who has ultimate control over the company. He has put all the capital in and can ultimately decide its fate. That is also why I don't see the point in trying to change the company from within or trying to oust him.

Right now I just want to get out with at least the lump sum paid and ideally also those awarded assets.

 

[Mr D]

Oh there is absolutely zero question about who has ultimate control over the company. He has put all the capital in and can ultimately decide its fate. That is also why I don't see the point in trying to change the company from within or trying to oust him.

Right now I just want to get out with at least the lump sum paid and ideally also those awarded assets.

So he has all the power and can decide to make insolvent to spite you?

 

[kulture]

You are missing the point. It does not matter who put up what on the creation of a company, nor who is owed what. All that matters regarding control is shareholding. At a normal board meeting each director has a single vote and thus two directors can outvote the third regardless of shares, HOWEVER at a shareholder meeting, which has the final say, then it is the percentage of shareholding that matters. So the real question is how much of the company do you own by way pf shares. Further how much does the ex-director still own by way of shares. It may be that together you can outvote the CEO.

 

[Lara J.]

I see what you mean. When we divided the share capital it was based on both the input of capital and time (time already invested and expected time investment in future). He therefore has 80% of the shares. That was fine with the other director and myself as neither of us saw this as a full time role or something to devote our lives to. He did, so it makes sense for him to have this level of ownership.

That is also the reason neither of us have the desire to wrestle control from him. I just want to get out, with the lump sum.

That means that outvoting in board or shareholder meeting is out of the question.

 

[Mr D]

I see what you mean. When we divided the share capital it was based on both the input of capital and time (time already invested and expected time investment in future). He therefore has 80% of the shares. That was fine with the other director and myself as neither of us saw this as a full time role or something to devote our lives to. He did, so it makes sense for him to have this level of ownership.

That is also the reason neither of us have the desire to wrestle control from him. I just want to get out, with the lump sum.

That means that outvoting in board or shareholder meeting is out of the question.

Two of you could outvote him on the board.
Shareholder meeting he has considerable power. As a shareholder.