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Alex J.
Alex J., Solicitor
Category: Law
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Experience:  Solicitors 2 years plus PQE
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I am writing in regards XXXXX XXXXX situation I find myself in at

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I am writing in regards XXXXX XXXXX situation I find myself in at work in which I suspect that some of what has and is being done may not be legal. I started working as an employee of my father in 2003. I am the second son, so when I joined the business my eldest brother was already working with my father had been made a partner. I did not join the original business (selling corporate gifts), I started a new business in a completely different trade so as to provide some addition variation for those joining later and also provide stability in an economic crisis. My next brother down joined within a year and very shortly afterwards the partnership decided they would make him a partner in effect putting him in charge of me in the business I had started. I decided I would leave due to utterly baffling and grossly unfair situation but on understanding this, the partners made me a partner too which I accepted and we moved on. Over the past 10 years the business has grown by approximately £100,000 per year, with my younger brother managing the operations and me managing the sales. Over the years we have taken on employees but no other members of the family have joined, instead they have gone to work for the older, original company with my eldest brother and father. Having originally allocated £1000 to a bank account for me to start and having paid our wages and overheads, we initially built up a debt to the parent company that was carefully kept track of and paid off inclusive of interest. There is no existing disagreement about this point. However, with the economic downturn in 2008, the parent company was badly effected and did not break even from that year until 2013. The new company started by myself was breaking even by the time the parent company began to go down and so the newer company supported the older company year on year until 2013 when the parent company broke even again. In the meantime, although our new firm was going well and was showing healthy returns, it was becoming very clear that my younger brother who had joined me was set on taking overall responsibility for the company as we are equal partners and there has been many disputes without any proper final decision due to a lack of third brother or partner in the business. Despite the continued success of the firm in the face of all odds, my younger brother began to make greater and greater objections at every opportunity until it was finally decided that the business I had built and he had run - should be sold. Although there was interested parties to purchase, my younger brother insisted that any offer on the table was only about 1/2 what the business was worth and so when he finally got another valuation of his own (in addition to those already done for the purposes of marketing), he go a written valuation that showed the business to be worth not quite double but getting on for what we had been offered - although I had witnessed him telling the accountant what he expected the valuation to be approximately. So the business was not sold but continued with its internal issues in management until a family friend got involved and insisted that the way forward was to get the management of the two brands in the same family and partnership (that was also under the same roof), to work together more. He dictated that my eldest brother from the parent company should undertake a position of general manager in the newer and now larger firm and sit above my younger brother and I in order to be able to settle disputes. This should have worked, but in addition he removed my p/a and allocated her as answerable to my elder brother as general manager and from this point the situation deteriorated extremely rapidly. My p/a quickly discovered that she no longer needed to pay any heed to anything I asked and other member's of the operations team worked to create frustration for Sales (myself), as often as possible knowing that my eldest brother sided against me whenever possible - it all came to a head when I refused to sign a partnership agreement which my eldest brother had constructed without input from other partners, all partners signed it except me as it was loaded against me from top to bottom. As I have not signed, they now insist that there is no policy to abide by where I am concerned and following a dispute in the office in October 2013 my younger brother has walked out and the other partners have insisted I stay home and there is an employee who now runs the operations who will shut the systems down and go home with all passwords if I appear at work. They have shut me out of the business systems, diverted my desk phone and hacked my emails. They have rocketed the wages of the staff to nearly twice that of any partner and are moving large sums of money out of the business account.
Is this legal and what can I do to stop this ongoing situation? (they removed my bank access 3 years ago as they said I did not need it being on Sales)
Submitted: 3 years ago.
Category: Law
Expert:  Ben Jones replied 3 years ago.

Ben Jones :

Hello, my name is XXXXX XXXXX it is my pleasure to assist you with your question today. What would you like to achieve in this situation please?

Customer:

Hello Ben,

Customer:

We just want to know if what the rest of the partners have done and are doing is legal or is there a breach of my rights as an equal partner and what courses of action may be open to me

Customer:

Thnaks

Customer:

Lawrence

Ben Jones :

So you are officially a partner in the formal partnership?

Customer:

Yes that is correct

Ben Jones :

ok this is more of a corporate law query than an employment one so I may not be the best person to advise you, I will refer this to a colleague who may be better placed to help you

Customer:

thank you, XXXXX XXXXX Look forward to hearing from them.

Ben Jones :

Have sent them a message so as soon as they get it you should hear back

Expert:  Alex J. replied 3 years ago.
Hi,

Thank you for your question and welcome.

My name is XXXXX XXXXX I am a corporate law expert. My colleague has asked me to look at this.

If you took the wages out of the situation would the partnership be making profits? Does it have any assets? Do you have detailed partnership accounts

I am going to write an initial response which may take me some time so please do not be concerned if you do not hear from me until this evening.

Kind regards

AJ
Customer: replied 3 years ago.

Hello AJ,


 


Thanks for you message, in reply to your initial questions; I can confirm that the partnership is making profit after wages are drawn. Remaining profit is split between partners and is shown against their capital share on the accountants. The partnership went from having an annual set of accounts to quarterly accounts about 2 years ago. In relation to assets, the partnership owns it's own premises which comprises of approx 10,000sq ft of warehouse and 5000sq feet of offices altogether although the accommodation is split equally between two separate buildings on the same site and we rent one of the buildings out. There is a mortgage on the premises of about half it's value. There are 9 or 10 vehicles which are owned by the company, although two may still be on HP currently. All the partners have reasonable sized detached houses although all but Father would have a mortgage of up to a third of the house value.


 


I hope this answers your questions, we are really wanting to just ascertain were my wife and I stand at this stage (all the boys are married apart from the youngest who is not a partner either, but all those that are married have had their wives made partners also - not sure if that changes anything...) There was a point around 12 - 18 months ago when Father and my eldest brother agreed that if the newer business was sold, I and my younger brother should benefit by splitting the goodwill seeing as all debts to the parent company had been paid off with interest and the newer business had actually been supporting the parent company for a considerable time. However, when the family friend got involved, he suggested that we should all benefit equally from 'the sale of a brand' in other words one of my younger brothers (who is a partner but has never done anything towards the newer firm), would get the same amount of money in the instance of the business sale as myself who has built the business from nothing to where is is today. Needless to say, I don't agree with this but the partners of the parent company think it's a fine idea. As it happens, whilst the parent company is now breaking even again, it is questionable if they alone could continue to pay all the overheads and outgoings if the newer and bigger business was sold and so they are endeavoring to force a takeover which is badly effecting the newer business, not least because of their limited knowledge of a very different trade, but because the one person who the majority of clients had their faith and confidence in (ie; me) seems to have disappeared off the scene - several large clients have already been lost but my eldest brother is not the slightest bit bothered.

Expert:  Alex J. replied 3 years ago.
Hi,

Thank you.

I am working on my response. It is taking me a little longer than I expected as I am just working through the information you have provided, I will post the answer before the end of the weekend.

Kind regards

AJ
Expert:  Alex J. replied 3 years ago.
Hi,

Thank you.

I am sorry for the delay in responding to you, I have had some additional problems logging in over the weekend.

I have reviewed this and at the moment the basis position is that if this is a straight forward partnership then all assets and debts should be split in the proportion of the capital you own.

Once thing I am unclear about is reference to the parent company? How does that tie into this?

What exactly is your ideal resolution? To have a pay off and then go and start a new business?

Kind regards

AJ
Customer: replied 3 years ago.

Hello AJ,


 


Sorry to be a while coming back - I am sorry if it is unclear, I possibly include too much detail but the situation is a bit complex (it is to me anyway)! In mentioning the parent company, I refer to the company run by my father and my eldest brother, that company financed the company I started and so it has always been referred to as the 'parent company' and because of the fact they were there to provide premises and income etc etc whilst we were getting the other business going, some have argued that they should have a good proportion of the goodwill if the newer company was sold...


 


The ideal situation here is for me to stay with the business as not only am I responsible for the sales, but none of the other partners have the same sort of passion for it that I do. I think they would all acknowledge this, but they also see the business that I have built as a good source of income for themselves. However, they would prefer to run it how they want not how I have run it for the last ten years and this has caused such significant problems, that they resorted to what I effectively consider blackmail to keep me away from the premises/buisness.


 


I am not sure if I am making sense, but I am basically incredibly frustrated that anybody can put this kind of pressure and obligation on another person - most people I know, whom I have confidence in and understand the personnel involved, either cannot take in what I am telling them or consider that I should simply ditch the future with the company and look for work elsewhere. However, I cannot do this as I have put so much into the last ten years in building the business that I would never be able to live it down and so I am faced with either playing along with everything the other partners ask (frankly impossible), or taking a hand myself by physically blocking anybody from entering the premises, or if on managing to enter the building, find it empty as I would have emptied it of everything required to run the business - you may wonder what you are reading, but by doing this, I am effectively doing what they are doing to me - just instead of only me losing - everyone loses. It seems a shame to have to go down this route but they have blocked me from the business for 6 months and are planning to either stop or significantly reduce my salary by the end of June this year, they don't show any sign of changing their attitude and I have frankly had enough, I just thought I would try and ask for some legal advice to see if there was anything I could do to put any end to the current stand off as I have been led to understand that what they are doing is not actually legal as I am an equal partner with equal rights to the business and to access it as they do.


 


Is the situation any clearer to you now?!? I really don't think I have the energy to start up all over again, splitting the money from the sale of the firm in the way you have confirmed would mean that my Dad who has done nothing apart from lend us the means to start up (which has been repaid with interest), would get twice as much as I would get as he has a £200,000 capital share, I understand there may not be anything I can do about this, but it will split up our family for life.


 


Apparently in the absence of a partnership agreement, any single partner can dissolve the partnership at any time, but no partner can be voted out of the partnership by a majority - this is in the Partnership Act 1890 as I understand it, but in the event of partners not adhering to the act - what can be done and how could you go about enforcing it?


 


I look forward to hearing from you - I am out all of tomorrow but will be back tomorrow evening.


 


Regards


 


Lawrence

Expert:  Alex J. replied 3 years ago.
Hi,

Thank you.

You are correct under the Partnership Act 1890 you can dissolve the partnership but you cannot be voted out. If the partners are not acting in good faith or breaching their fiduciary duties you can sue them for you believe to be are the losses of the partnership. This would involve having to find evidence like for example partners awarding themselves excessive salaries without agreement of the other partners.

THe long term issue here is that you do not trust the partners you are working with and this is really not the basis for a business arrangement. If you are not willing to challenge the relationship or dissolve the partnership (as it will have implications on your family)then you will have to find some form of compromise.

Just to think about suggestions that avoid litigation. Would your family be agreeable to licensing to a separate limited company that you form and are the shareholder of, the right to use the partnership assets that you use in your part of the business?

Kind regards

AJ
Customer: replied 3 years ago.

Thanks AJ,


 


Clearly we have issues with trust and I cannot see how these can be put right anytime soon with the current situation continuing to deteriorate. According to the Partnership Act I should have equal rights to manage the company and have equal access to the business (although I think the act refers to business 'books' I presume this means the accounts, but presumably anything else to do with the business.


 


As far as I can make out from what I have read in the Act and what you are saying, I can sue them for breaching the law as set out in the Partnership Act if I can prove that what they are doing is causing loss to come about? Is this correct? In short this should be quite straight forward as the sales are going down and there are a number of clients who would leave if they knew what was happening - indeed, some already have. But how do I go about obliging them to give me access to the business if they will not co-operate, the only way is to sue?? For which I would need to write to them saying I am dissolving the partnership first. Have I understood this correctly? They are unlikely to agree to the Ltd plan, my father in law has already tried to buy the business to solve the ongoing issues, but having said they were happy the other partners ongoing actions effectively show that they have no intention of selling it whatever.


 


Could a court insist that I be given equal access to the business banking for example? I had access previously and was simply removed as I never needed to use it, but the situation is very different now. The partners running the older company are taking large sums of money from the younger business and using it to keep the older business afloat and pay themselves and their staff. In addition they have compromising relationships with some members of staff and have rocketed their wages to way in excess of any of the partners. All of this without any reference to to me whatsoever and it is my clients who are bringing in the money.


 


I look forward to you confirming that what they are doing as I have outlined above is in fact outside the law if taken to court and proved.


 


If you had any other particular suggestions I would appreciate it.


 


Regards


 


Lawrence


 

Expert:  Alex J. replied 3 years ago.
Many thanks.

I have just received this I will review it as soon as possible and revert to you.

Kind regards

AJ
Expert:  Alex J. replied 3 years ago.
Hi,

Thank you.

I will deal with each point in turn.

1. Yes the business books means the accounts.

2. You are a partner - I know this may not sound helpful but as you are a partner you can order any bank or accountancy firm to give you access to the company statements. I would try this before suing. All you would probably need is some form of headed paper and ID. If they still will not grant you access you would need to apply to court to obtain an injunction.

3. Dissolving the Partnership is fine, but it would have the same result as buying you out. They would doubtless sell the assets to pay you out your capital and reform the partnership else where. You major concern should be that you do not want to allow them to hold you to ransom to get your capital back, by for example asking you sign any restrictions if you leave the partnership.

4. As a practical step in the build up to taking any action start to take copies of any emails that are relevant to your dispute or any information that you have that shows mismanagement.

I look forward to hearing from you.

Kind regards

AJ

Customer: replied 3 years ago.

Hello AJ,


 


Thanks for the above.


 


Sorry for any confusion, but to be clear; I can veiw the buisness banking online (which is how I am able to see what they are paying the staff and how much money they are removing for what I can only presume is supporting the other buisness). However, I cannot access the banking to make any changes or pay an amount out for example without the consent of my eldest brother, unless I visit a branch in person and apply to knock him off the banking system allowing me to take his place. This is all fine apart from the fact that there is nothing to stop another partner (ie; my Dad) doing exactly the same thing to me in turn, so not sure this will really achive very much.


Regards XXXXX XXXXX out, they would have enough liquid cash to do this with the amount they have in hand in the newer buisness but all of this is a last resort I guess.


Regarding evidence, I have collected evidence over years including tape recordings, emails other personal witness - in fact everything apart from actual video footage of situations within the office - which would have been invaluable, but I am not that sure what it all poves exactly, the main office and the other partners have refusung to communicate with me at all unless through a third party, since they insisted I remained at home sometime in October last year, so the situation is pretty difficult frankly.


 


Sorry to be a pain, but the main query we had still remains unclear; if what I have confiremed as to thier current actions could be proven (or they actually admitted this was the case which although you may consider highly unlikely is actually highly likely (ie; prevention of access to the building and buisness systems for example) can you confirm that what they are doing (as clearly in breach of the partnership act 1890) is effectively breaking the law? Sorry it sounds a dumb question as what I am saying is proberbly blindingly obvious, but I notice you have not actually confirmed that they are breaking the law, presuming of course that what I am telling you is factual (which it is, or otherwise I would be wasting my time and my money), but to have you confirm this particular point is actually very critical for our own peace of mind.


 


I look forward to hearing from you


 


Kind regards


 


Lawrence

Expert:  Alex J. replied 3 years ago.
Hi,

Thank you.

Why dont you just go to the bank and ask to be on the banking mandate, you do not have to knock your brother off it?

No problem I am happy to discuss this until you are satisfied.

Breaching the partnership act is not "breaking law" in the sense of stealing something for example it is a civil claim. That is to say you can sue your partners for breaches to their fiduciary duties and failure to comply with their obligations to act in the best interests of the company. This means the obligation is on you to quantify the damage it has caused to you/the partnership and sue them for it. This is why it is best to have a partnership deed, because then any claim can be related back to a breach of the deed (i.e an actual document that envisages what the relation between the parties is and how it should be governed.

Is it too late for you to renegotiate the terms of a partnership deed?

Kind regards

AJ
Customer: replied 3 years ago.

Thanks,


 


If I understand the termanology correctly, a buisness mandate was drawn up when we originally went with the bank (HSBC), and all the partners are on the mandate as signituries, but my eldest brother is the only one who has the authority to authorise movement of monely electronically. The way HSBC works this system is that to be able to move money over the internet banking you have to be set up and authorised to do so, the only person who can authorise me to do this is my eldest brother as he is the only person on the internet banking system currently - sorry they have a name or term for this position but I cannot think what it is. So, having spent an hour and a half on the phone to the bank discussing the situation they finally confirmed what I already suspected to be the case by confirming that if the person currently authorised to transfer monies on behalf of the buisness was refusing to set me up on the internet banking then I could visit any one of thier branches and fill in a particular form which once processed (takes about three weeks), would render my brother unable to authorise further payments (unless I set him up) and the only person able to make payments online etc - would be me. Currently I can sign cheques, but my Dad who holds all the cheque books is refusing to let me have one (as instucted by my eldest brother) and the bank will only send a cheque book to the buisness premisis for security reasons they say, which obviously does not help me much.


 


Regards XXXXX XXXXX deed, I presume this is basically the same document as a partnership agreement - which I can confirm we have never had. The only attempt to put such a thing in place was last year and was put together by my oldest brother alone - it was so heavily loaded against me that there wasn't a hope of my signing it, please be clear that he would never sign anything I put together either, if only for the simple reason it was put together by me, regardless of how fair it may be, so as yet I have not wasted my time.


 


My only other option at the moment is to do nothing, as my pay is still coming through (as is my brothers who has apparently left), but this will only continue for so long - there will come a point where they will stop my wage - so what happens then? They could reason that they have stopped my wage becuase I am not at work, but I am not at work because they will not let me come to work...


 


What would it be best to do when they do this (as they surely will sooner or later)?


 


regards


 


Lawrence

Expert:  Alex J. replied 3 years ago.
Hi

Thank you.

I am just reviewing this now I will respond by tomorrow morning at the latest.

Kind regards

AJ
Expert:  Alex J. replied 3 years ago.
Hi,

Thank you.

The situation with the bank is complicated. If you take the action to effectively cancel the brothers power to draw money then that is likely to deteriorate the relationship beyond repair. The most important thing is to ensure you have access to the financial statements cause you will need these as evidence if you have to sue.

My suggestion would be to take the partnership deed (partnership agreement - its the same thing) and amend to something that is acceptable to you (for example ensure that your drawings are never taken away). You can ask a local solicitor to do this for very little money.

If they stop your salary (drawings) then that has to be tantamount to the end of the relationship and you would probably have to consider dissolving the partnership.

I would suggests you options are as follows:
1. Do nothing wait for the relationship to deteriorate and then sue the partners for breaches to their fiduciary duties and damage to the partnership;
2. Try and amend and renegotiate the terms of the partnership agreement to help protect you;
3. Dissolve the partnership now take your capital and start again.

Unfortunately you have to question whether in the longer term you want to actually be partners with these people anymore. I know it is difficult when it is your livelihood but what is the point of continuing if you think they will stop your salary as well?

I look forward to hearing from you.

Kind regards

AJ
Alex J., Solicitor
Category: Law
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Experience: Solicitors 2 years plus PQE
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