Resigning as sole director / Notice Period

[Andy1222]

I am sole director and minor shareholder in a small internet business and wish to resign.

The main shareholder who owns 95% of the business is making unrealistic demands, and is not listening to my advice about ceasing trading. We have relied on him for wages for a while, but now he's saying that it should be my responsibility to pay wages this month. Something that I could not cover even if I wanted to.

After accumulating a debt with the hmrc, not being able to attract investment and not being able to stand on our own I've realised that there isn't a way forward and closing the company would be the right thing to do. However, since he's implicitly told me he wants to continue with the company by not making staff redundant, I plan to ask him to find a new director and resign.

What I'm concerned about is he's become verbally abusive and I'm concerned he's going to make it difficult to accept my resignation. Can he make me serve 3 months notice that's on my contract if his plan is to trade whilst insolvent?

Am I correct that legally he has to take one of the two options?:
- Follow my advice and seek the advice of an insolvency practitioner?
- Accept my immediate resignation and find someone else.

 

[Lisa Thomas]

Hi Andy

Oh Dear this sounds stressful!

Is your employment contract separate from your role acting as a Director of the Company?

I suspect you are perfectly within your rights to resign as a Director (subject to the terms of your employment contract).

Your employment notice might be a different issue and its difficult for me to advise as I'm not an employment lawyer but the key question to me is what is the penalty for you not serving enough notice...?

He doesn't have to take advice of an IP at the moment as you are the Director and unless and until you resign it's your responsibility to see an IP, not his if he is just a Shareholder.

However if and when you resign as Director if he wants to continue the business he will have to find a replacement Director, or become one himself.

I would suspect as communications seem to have broken down the best way for you to deal with this is to send him a brief written communication about your concerns if the Company continues to trade it might be doing so insolvently and that as he is insistent the Company continues in current circumstances you have no option but to resign both as a Director (and employee?).

The alternative is to have a meeting with an IP and get the IP to confirm the options open to you which you can then send to him and see if that helps unlock the position.

 

[Andy1222]

Thanks Lisa. It's been a nightmare but I've definitely learned from this mess! I hope it get's sorted soon :-(

I have already raised concerns with him via email. Should I also do this in writing to cover my back?

I actually have an appointment with an IP on Tuesday. Since the Shareholder has implicitly said that he wants to keep the company running regardless by keeping staff on today, should I just submit my resignation or should I speak to the IP first in order to present his recommendations?

 

[Lisa Thomas]

For the moment no need to as he might reply, which will be evidence of him receiving it. If you are worried then you can always print it off and send it via recorded/registered post but wait until after your meeting with the IP.

I would suggest there is no harm in you waiting until after you've had the meeting with the IP before taking action and think this is the better idea as you will have been fully advised and can reply on that advice to (presumably) resign or confirm the advice received has been to (say) Liquidate and ask if he, as the majority Shareholder, will be wiling to sign the necessary resolutions to do so, failing which you will be left with no option to resign.

(This is on the assumption the IP advises Liquidation as the best course).

 

[Andy1222]

Great, thank you! That makes things slightly less stressful!

I will wait until Tuesday then....

 

[Lisa Thomas]

You're welcome - let us know how you get on?

 

[Chris Ashdown]

Is there enough money in the company to pay for the ip, as he will want to be able to get money out to pay his own wages etc from the company, I have no experience that they normally ask for about £3000 as a minimum to take the company on, but maybe a accountant could give you a better idea of the cost

 

[Lisa Thomas]

IP should be free for initial meeting.

If advice is to Liquidate the Liquidator usually gets paid from Co assets.

From c£4.5k - £5k upwards depending on the case and work involved.

Compulsory Liquidation will cost c£3k-£3.5k for the Court and legal fees.

 

[Andy1222]

It's a good point actually: I don't think there are enough saleable assets to cover the cost of liquidation.

If the IP does recommend liquidation and the costs aren't covered, are the costs split according to shareholding %?

I take it if the shareholder didn't want to proceed or had a problem paying his share of the IP then I could resign with objections? It would then be his responsibility to deal with the company in his own way (e.g. by continuing or by implementing the spongebob plan)?

 

[Lisa Thomas]

Hi Andy - there is no obligation on anybody to pay for a Liquidation personally so if the Company can't pay for it and nobody else wants to put their hand in their own pocket you won't be able to liquidate voluntarily.

It's the Directors responsibility to deal with matters so the onus is on you to deal with the Company's affairs unless and until you resign or another Director comes on board.

 

[Andy1222]

I could at least present the % split of the costs though to him as an option as that would be fair way to handle it? To be honest, I don't think he will agree to pay any money for this, however as director I need to advise him that this is probably the right thing to do and if he doesn't want to accept my advice I have every right to resign.

What I suspect is he wants to do is let me resign, and phoenix it and not close the old company off properly; ultimately I suspect won't be able to force him to handle this situation properly....

 

[Lisa Thomas]

You can always try. If Oldco does go into Liquidation for any reason and he has done an illegal Phoenix the Liquidator will pursue him for it.

As long as you resign you are not responsible for anything that happens afterwards.

 

[Chris Ashdown]

Have you thought of resigning as a director straight away but remaining as an employee, the other shareholder will then have to accept your resignation

Then its up to him to find a new director and work out if he wants to continue employing you

Any way far better to look for a new job now and get up and running rather than stagnating and firefighting

 

[Andy1222]

I'm doing it when I have spoken to the IP on Tuesday: that way I have fulfilled my responsibilities as a director and have something concrete to back up my concerns.

I am also worried about our staff, because normally I have received monies from the Shareholder in which to pay wages, however now he's put me on the spot saying "you pay it". If monies are not going to come from him then I need to sit down with the staff and let them know that wages are not going to be forthcoming and the reasons why. I will probably do this next week if I can't box it off with the Shareholder.

I will have to tell them about the position I have been put in and let them know that they will be paid as soon as possible (probably a week or so later than normal).

 

[Andy1222]

Oh, I am looking too! I have an interview on Monday morning....

 

[Chris Ashdown]

How do you know they will get paid

You are trading when you know you are insolvent and could / will carry the can for that. you are running the company regardless of what shares the other person has. you don't have enough shares to shut down the company from what I remember but should immediately stop trading and then take any action after that

 

[Andy1222]

As I'm sole director, I'm the only one with access to the bank account and therfore I will be able to pay wages (though they'll be late because I'm waiting for invoices to be paid).

The shareholder has previously propped up the business by paying wages, but only just told me that he is not able to do it this month even though he has been doing it for 2 years. He only told me two days ago!

I have told him that we are insolvent and we needs to take action but he has not been in contact. This is why I have taken action with the IP etc.

I haven't ceased trading yet because I should give the main shareholder opportunity to make things right.... It's only been a couple of days since he told me that he couldn't cover wages after all....

 

[Andy1222]

I know most people would call it a day after 2 years, but the fact is he showed interest to grow the business only 1 month ago!

 

[Andy1222]

I have now been offered another job. I have told the shareholder that my first day will start on 15th of February.

Now he's saying that he is not sure whether he will close the company or start a new one afresh. I have advised him that he can't take the assets and start afresh as this would be an illegal phoenix.

I told him about seeing an insolvency practitioner but he stated he did not want to do that and asked me to cancel the appointment because he could not trust them getting involved. Since he is shareholder and it's his business I thought it was reasonable for him to handle it as so long as it's dealt with soon.

I am now wondering whether to just resign and fall out with him (he's not the kind of person you want to fall out with) and risk not getting paid. He has instructed me verbally not to pay PAYE which is wrong, besides I don't even have the money to pay it until next months money comes in.

I'm currently in the mindset that I should pay PAYE next month anyway as soon as the money comes in (because a shareholder can't ask to withhold that surely?), pay the teams wages and then resign as director.

To complicate matters he's saying that the current company is not set-up right as the assets (software) should belong to him and not the company, even though the other director CC'd him in the last return. The last director resigned 3 months ago but hasn't given up his shareholding yet.

He wants us both to give up our shareholding. Considering the company isn't succeeding and I'm keen to distance myself from the whole situation I would probably be happy to....

I'd appreciate your advice!

 

[bovine]

But you've told him you are starting a new job, but haven't resigned? Hows that work?

If you are leaving, sort out with the shareholder so he has control over the bank account and get him to do the payments. Arrange an exit/handover.
Is this some sort of shadow director thing? Why does he own the nearly 100% of the company and not be on the board?

 

[kulture]

If he is giving you instructions regarding the day to day running and payments then he is acting like a shadow director.

A director is in charge. You should either do what you think is right and see the IP, or resign.

 

[Andy1222]

I think you've probably hit the nail on the head. What he's asking me regarding not paying PAYE this month and not seeing an IP isn't right even though he has only done it verbally.

He has however sent another email last week saying he has 'no intention of ceasing trading or laying people off', so I think that's a good enough reason to resign because he's ignored advice.

I take it I can just give notice by email and appoint him director in companies house web-filing or does he have to agree first? I'm just concerned he's going to make things difficult for me. He can be difficult to contact.

 

[Andy1222]

(I've made the distinction between what he's said and what he's emailed because I want to cover my back)

 

[Lisa Thomas]

Andy

You can resign as a director using a TM01 form. This link might be useful:

https://www.gov.uk/government/publications/terminate-an-appointment-of-a-director-tm01

You can't make him formally become a Director - only he can do that by signing the necessary AP01 form and lodging it at Companies House.

https://www.gov.uk/government/publications/appoint-a-director-ap01

If you are resigning it won't be your problem anymore - leave it for him to worry about.

Just keep all the correspondence in case an IP is eventually appointed and investigates what happened.

 

[Andy1222]

That's great! He's going to be a nightmare, but I have to do what's right because I don't want to be held liable.

Although I'm probably going to resign as director this week, I thought I'd give him a months employment notice so that he can at least make provisions to find a replacement since they are his wishes and other people are involved. Do you see any problem with that?

 

[Lisa Thomas]

I think that's very reasonable of you. Just check what your employment contract says.

 

[Andy1222]

It states three months employment notice, but I have already told him that I am starting the new job next month... I just thought it would be difficult to both find a job with that notice and also fulfil that with what's been going on.

I have a feeling that I won't get paid this month, but if that's the case I'll probably take the case to an employment tribunal since if he wants to keep the company running he's admitting that he's solvent and can fulfil his contractual obligations.

 

[Chris Ashdown]

Get out now, you risking getting held responsible and end up being taken to the cleaners by a IP for not acting quickly to stop trading when you know you are insolvent .

Stating you were only obeying orders wont wash and working another week or month wont change the situation

 

[Andy1222]

So you're saying I should both resign as a director and not fulfil my employment contract?

Are you saying I'm liable even if I resign today and decide to fulfil my employment obligations? At the end of the day I don't want to drop my colleagues in it who are good employees....

My plan was to send a letter of resignation today as director, however I was going to also state that I would continue covering the work in the capacity of a manager until the start of February.

 

[Chris Ashdown]

Yes get the resignation of director off straight away and also send in the form to companies house, the rest is up to the owner what he wants to do

It's great to think about the others but you are not in a position to work wonders

Don't forget to keep copies of all correspondence and brief records of phone calls to the owner you don't know what will come useful at a latter date if you need a deference

 

[Andy1222]

I got him to agree to take over as director before resigning in the end because he needed access to the bank account.

I am doing a handover to keep things amicable...

 

[Lisa Thomas]

Good to hear.

 

[Chris Ashdown]

From what you have said in your posts , I think you have made the right decision