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Jo C.
Jo C., Barrister
Category: Law
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Experience:  Over 5 years in practice
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What happens when there is complete breakdown in communications

Customer Question

What happens when there is complete breakdown in communications between the two 50% shareholders of a company. I am one of the shareholders and also the managing director of a failing company. Our accountant has informed us that the company should be wound up or needs an injection of money to continue trading. Biggest debt of £26000.00 is to the vat. He wanted a meeting between the shareholders but the other guy would not agree too meet us. I could have sold the business and the building that we own but he refused to sell and will not meet up to discuss anything. Does the MD have any authority in this situation.
Don Sussex
Submitted: 2 years ago.
Category: Law
Expert:  Alex J. replied 2 years ago.
Hi,

Thank you for your question and welcome.

My name is AJ and I will assist you.

Do you have a shareholders agreement?

Have either of you lent any money to the company?

Kind regards

AJ
Customer: replied 2 years ago.

Yes we have a shareholders agreement.


 


We have both lent money to the company but my partner is owed £7000-00 more than me.


 


Just as a little background, I started the company in1984 with a different partner but he retired and rightly or wrongly we gave the shares to the existing partner. He has never paid for them.

Expert:  Alex J. replied 2 years ago.
Hi

Thank you.

Does the shareholder agreement contain any dispute resolution provisions?

Are the shares recorded as unpaid in the company balance sheet?

Kind regards

AJ
Customer: replied 2 years ago.

Unfortunately it is no to both questions.


 


We,as shareholders, own the building separate to the limited company.


 


Sorry to say that I must break off now as I have a hospital appointment but will be back early afternoon.


 


Regards


 


Don Sussex

Expert:  Alex J. replied 2 years ago.
Thank you.

I will write response it may take me a little bit of time so please check back this evening and I will outline some options.

Kind regards

AJ
Customer: replied 2 years ago.

Still awaiting an answer

Expert:  Alex J. replied 2 years ago.
Hi,

My apologies.

I am just writing this now, I had no internet access last night.

Kind regards

AJ
Expert:  Alex J. replied 2 years ago.
Hi,

Thank you.

I am afraid the company is currently deadlocked. Your options are:
1. Agree a price to buy/sell your shares to one another;
2. Go to court and apply for a court order to have the company wound up on the basis that you were in partnership and this has ended;
3. Bring a derivative action under S.260 of the Companies Act 2006 on the basis that the managing director is in breach of his obligations under S.172 of the Companies Act 2006 for failing to act in the best interests of the company.

In all honesty court action should be avoided and resolving this by agreement would be the best way forward.

Is the MD trading the company knowing it has no prospect of paying its creditors?

Kind regards

AJ
Customer: replied 2 years ago.

It appears that you have got the wrong idea because I am the MD not the other guy.


 


Can you advise me further please.


 


Regards


 


Don Sussex

Expert:  Alex J. replied 2 years ago.
Hi,

Thank you.

My apologies.

The situation actually wont change that much. Is the other shareholder also a director?

Kind regards

AJ
Customer: replied 2 years ago.

Yes but has not physically got involved since he retired ten years ago.


 


He has now informed me that any decisions to be made will now come from his son who is also a director.


 


Regards


 


Don

Expert:  Alex J. replied 2 years ago.
Hi,

Thank you.

Everything I have said above still applies.

What does he want to do with the company? Legally if you are running up debts with no hope of recovery you cannot keep trading - it is called "Wrongful Trading"and if the company goes insolvent it could make the directors personally liable for the company debts under the Insolvency Act.

I look forward to hearing from you.

Kind regards

AJ

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