Resolving conflicting interests

[Startup Sam]

I'm a 24% shareholder in a tech company I founded. The balance is owned by 25% shareholder B and 50% by shareholder C. I secured 100% of new business and grew client revenues for the company but was forced out of the business in 2018 and after a long legal battle (which I won) but am no longer actively involved in the company. The company has declined in value since I left due to lack of sales, excessive fees paid to Directors, unsustainable losses and increased liabilities. Shareholder B remains as a Director but has decided to make it a part time liefstyle business. Shareholder C is open to sell his shares but does not appear to accept the decline in value. B's approach appears to be take as much cash out and wait for it to fail. Is there anything I can do the prevent this? I'm open to buying out B & C but they are not in the real world. I'm open to mediation to unblock things.

 

[Heyes]

If they're unwilling/unrealistic there's little you can do unless you have appropriate articles/shareholder/other agreements.

 

[Startup Sam]

If they're unwilling/unrealistic there's little you can do unless you have appropriate articles/shareholder/other agreements.

thanks for your comments....its very frustrating!

 

[Heyes]

C and you could act to oust B as director, subject to the aforementioned articles/agreement etcetera, and thus slow the financial decline.

 

[brucegreig]

Maybe it is best to wait for it to fail and buy the assets (tech, brand, customer lists, whatever there is) from the administrator?

 

[Lisa Thomas]

It sounds as if there is a possibly the company is insolvent.

Is C a director too, or is B the sole director?

 

[Startup Sam]

C and you could act to oust B as director, subject to the aforementioned articles/agreement etcetera, and thus slow the financial decline.

Yes, I think that could be the best next move. Thanks for your help.

 

[Startup Sam]

Maybe it is best to wait for it to fail and buy the assets (tech, brand, customer lists, whatever there is) from the administrator?

That is an option but hopefully we can agree a deal as a going concern. Thanks for your comments.

 

[Startup Sam]

It sounds as if there is a possibly the company is insolvent.

Is C a director too, or is B the sole director?

I'm concerned that is heading in that Director and have voiced my concerns multiple times. C is not a Director. There are 2 Directors (B + 1 other - non shareholding).

 

[The Byre]

Contact @The Resolver ASAP! You can contact him at the links below -

Graham Ross, lawyer and shareholder mediator -07885 728801 l Resolve shareholder disputes
Negotiate deals /sales/settle disputes www.MySmartNegotiator.com l Book a 30mn Free advice call

As a 24% shareholder in the company, you limited control over the decisions made by the other shareholders, B and C. However, you may still have some options to protect your interests in the company.

One option would be to seek legal advice (see above!) to determine whether B's approach of taking cash out of the business and waiting for it to fail constitutes a breach of his fiduciary duties as a director. If so, you may be able to take legal action to prevent this from happening.

A better option would be to explore the possibility of mediation to resolve the dispute between the shareholders. Mediation is a cost-effective and efficient way to avoid the need for lengthy and expensive legal proceedings (where you enter as a pig and leave as a string of sausages!)

P.S. If you could sing in harmony with C, gaining control of the company through a special shareholders' meeting is technically possible, but you should carefully weigh the potential risks before pursuing this approach. Mediation and a possible buyout of B and C's shares would better protect your interests in the company.

 

[The Resolver]

UKBFers. Whilst it has been mentioned, we are slipping. We haven't asked the question on everyone's lips being, of course, "Did you all sign a Shareholders Agreement?"

Lets assume 'no'.

Sam, what was the long legal battle that you won. What was the judgment? Was it an employment case?

Is C a Director? If not, and B is sole Director is the company ruled by the Model Articles. If so some decisions in thw past may be voidable.

The first focus whould be on B's activities. As The Byre says, he could be exposed to a claim for breach of not just his common law fiduciary duties but breach of statutory duties under s172 and s174 of Companies Act 2006. Sam can sue in the name of the company (even though he is a minority shareholder) .

Lots of ifs, buts and maybes. Book yourself in for a free call (see my sig below) so I can give you more focused advice.

 

[Lisa Thomas]

I'm concerned that is heading in that Director and have voiced my concerns multiple times. C is not a Director. There are 2 Directors (B + 1 other - non shareholding).

If the Company is insolvent (or is headed that way) the directors should seek insolvency advice and seek to mitigate the position.

Failure to do so could mean they are pursued personally for any wrongdoing/misconduct should the company enter an insolvency procedure further down the line.