Shareholder Refusing to Provide Required Information

[ShareholderHel]

Hello,

I run a Ltd company in the UK. I am a minority shareholder. I have a foreign based parent company who is a majority shareholder.

Last year the parent company was due to be sold and the deal would have greatly affected my business. For various reasons, the deal fell through, but the most important reason was that the prospective buyer had cash problems and were not paying their bills to us. At one point, they owed us lots for sub-contract work done for them. We eventually got paid, but the sale broke down.

Through all of this, the relationship between myself and the foreign parent has soured a little. We are still working together and are still friends, but there is a history now.

More importantly now, my relationship with the majority shareholder in the foreign country has broken down completely. He holds me personally responsible for the sale falling through and is out for revenge.

Fast forward to the problem at hand - our bank in the UK are requesting confirmation of the ultimate beneficiaries of the UK Ltd company. They need to confirm the ID and address of anyone who owns more than 25% either directly or indirectly by accumulation or dilution.

The ultimate shareholder in the foreign country, let's call him Mr A, holds just under 50% shares of the foreign company. Mr A therefore holds x% * y% of the UK Ltd company, which is greater than 25%.

The bank have requested confirmation of ID from Mr A and have said that they will close our account unless it is provided under the know your customer legislation. What they've asked for is a bit frustrating, but nothing too challenging.

The kicker now is that Mr A has seen this as an opportunity to extract revenge against me and has refused to provide the information requested by the bank.

Mr A will not provide me with the documents. The bank have said that they will close our account. I cannot then open a different account as the new bank would just ask for the same information. Closure of the bank account would likely lead to the business being wound up.

I have attempted to discuss with the bank to change the requirements, but ultimately they're just following the legislation set out to the by law so it isn't proving to be very fruitful.

Mr A wants me to buy him out. He doesn't directly own the shares in the UK Ltd company, so I can't actually do that directly.

I could buy some of Mr A's shares in the foreign company so his ultimate percentage of the Ltd company is below 25% and the problem with the bank would go away. This however would cost £000,000's and I simply don't have that.

I could buy some shares from the parent company which would again bring the magic number below 25%. This would cost £00,000's depending upon the business value in the UK. Quite how I would value a business that is about to cease trading due to effectively blackmail, I don't know. I'm not sure that I also want to spend £00,000's simply as a result of blackmail.

Or, I could somehow change his mind. I have attempted to get the parent company to help, but he is refusing to help them either. He simply wants to make me suffer.

How can I make Mr A see sense that he needs to provide the documents that the bank has asked for (due to international money laws) and that this isn't an opportunity to extract revenge?

What recourse do I have against Mr A since he isn't a shareholder and isn't a director of my company, furthermore he isn't even in the same country as me?

Many thanks in advance.

 

[ChrisCallaghan]

Is there a shareholders agreement in place? If so, does it refer to penalties (e.g. forfeiture of shares) for actions or inactions that threaten the financial security of the company?

 

[ShareholderHel]

Yes there is an agreement in place. However, there is nothing in there about penalties.

Unfortunately, Mr A has already demonstrated his disregard to the shareholders agreement during the negotiations last year during the sale talks.

 

[ChrisCallaghan]

If the shareholders agreement hasn't considered this eventuality, there may be very little you can do here.

Might be on for @The Resolver

 

[Gyumri]

You are required to state to the bank the beneficial owners of your company, which do not appear to involve Mr A personally at all, although he is the ultimate owner of your company's parent company.

The bank is entitled to ask who owns more than 25% of your company's shares, which is Mr A's company. It is not however Mr A, who is not a shareholder in your company.

I think if Mr A wanted you removed as a director as an act of revenge he could easily do so through his company's majority shareholding in your company by passing an ordinary resolution or if required a special resolution.

 

[Newchodge]

You are required to state to the bank the beneficial owners of your company, which do not appear to involve Mr A personally at all, although he is the ultimate owner of your company's parent company.

The bank is entitled to ask who owns more than 25% of your company's shares, which is Mr A's company. It is not however Mr A, who is not a shareholder in your company.

I think if Mr A wanted you removed as a director as an act of revenge he could easily do so through his company's majority shareholding in your company by passing an ordinary resolution or if required a special resolution.

They have asked to confirm the ID and address of anyone who owns more than 25% either directly or indirectly by accumulation or dilution. Mr A owns indirectly.

 

[ShareholderHel]

Mr A does indeed own greater than 25% indirectly. As such, the bank has asked for ID. I have no clue if they're allowed to ask up the chain, but they have and the point is fairly moot when they're threatening to close the account / business.

I hold > 25% personally, so I can block special resolutions. We also have a clause in the articles of association that specifically gives me the right to choose a director, even though I own less than 50%. This was done specifically to prevent them from simply voting me out.

There are one or two other things that the shareholders agreement gives me rights to block over and above normal things (e.g. distributions and approval of new shareholders). It's the use of these rights that has caused the bad blood during the last year. They were put in to protect me and Mr A is upset about the fact that I used them to protect me.

Mr A owns < 50% of the parent, so he could theoretically be voted down if they all went against him, but that doesn't help when he is refusing to them as well.

 

[The Resolver]

Who are the Directors?

Have you yet exercised your right in the Shareholders Agreement to appoint a direcrtor ?

If you send me a copy of the Shareholders Agreement ([email protected]) I will, in confidence, see if anything stands out. No charge by booking a free call at the link in my sig below.

You need to establish as a fact , and with evidence, that no other bank account can be opened,

Have you considered the true motive driving the ;refusal to provide ID? Is it pure spite or does he plan to destroy the company and take over the busienss? Understandng the detail of his plan is important to deciding on strategy.

 

[ShareholderHel]

Yes, I have appointed a director (myself).

I will follow up with you in private. Many thanks.

 

[Frank the Insurance guy]

I hold > 25% personally, so I can block special resolutions. We also have a clause in the articles of association that specifically gives me the right to choose a director, even though I own less than 50%. This was done specifically to prevent them from simply voting me out.

There are one or two other things that the shareholders agreement gives me rights to block over and above normal things (e.g. distributions and approval of new shareholders). It's the use of these rights that has caused the bad blood during the last year. They were put in to protect me and Mr A is upset about the fact that I used them to protect me.

Well done @ShareholderHel ,

This should be hi-lighted to all our members on here - it shows the importance of having a shareholders agreement.

 

[ShareholderHel]

I dread to think what situation I would be in if I didn't have the shareholders agreement in place. It was worth every penny I paid (which wasn't actually that much) to the solicitor when I started up.

Unquestionably, an agreement must be in place.

Hope for the best, plan for the worst.

 

[NickGrogan]

Hanlon's Razor: Never attribute to malice what can be explained by incompetence. This rule reminds us to consider simple explanations, avoiding assumptions about malicious intent in misunderstandings or failures.

 

[The Resolver]

Hanlon's Razor: Never attribute to malice what can be explained by incompetence. This rule reminds us to consider simple explanations, avoiding assumptions about malicious intent in misunderstandings or failures.

So true! I would add’lack of knowledge’ to ‘ incompetence’