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Alex J.
Alex J., Solicitor
Category: Law
Satisfied Customers: 3557
Experience:  Solicitors 2 years plus PQE
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. My friend is a 50:50 shareholder and director. He has

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Hi. My friend is a 50:50 shareholder and director. He has found out that his business partner has been stealing money (circa £15k - which for a small start up business is a lot), and he has also fraudulently completed their VAT return, listing items which they haven't really bought and which he can't provide receipts for.
How does he stand?
He has confronted his business partner and he has threatened to phone all of their clients and "make things up" about him and destroy any relationships they have.
Obviously my friend no longer wants to continue in business with his fellow shareholder/director... But he refuses to leave the business.
Can he get his money back somehow? Is this a police matter? Can he force him out of the business?
Thanks
Submitted: 1 year ago.
Category: Law
Expert:  Alex J. replied 1 year ago.
Hi,
Thank you for your question and welcome.
My name is ***** ***** I will assist you.
Can you provide me with the following information:
- Do they have a shareholders agreement?
- Does he have proof of the fraud?
- How much does he have invested?
- Does the company have any creditors?
I look forward to hearing from you.
Kind regards
AJ
Customer: replied 1 year ago.

Hi Alex

There is no shareholder agreement unfortunately.

He will have proof of the fraud - he's requested bank statements so should have this later this week.

Neither of them invested any capital as such (that I'm aware of), other than my friend put some equipment etc that he owned into the company

They owe £7k to suppliers (there isn't currently enough money to pay these due to the money having been stolen). There is a small amount of money due into the company from jobs that are going through. They also have clients on monthly retainers (not a huge amount - circa £10k per month). In addition to the money that has been stolen, he has also taken payment by way of leather jackets for his family rather than charging for a job, which I guess is also effectively theft from the company.

Thanks

Expert:  Alex J. replied 1 year ago.
Hi,
Thank you.
Other than the equipment he owns what other assets does the company have?
There are various option and I will write a detailed response explaining the law and what this individual has done wrong. I will post this by 10am tomorrow as it will take me a while to write and I will need to refer to the Companies Act 2006.
That said are the following viable options?
(i) Your friend leaving the company;
(ii) Your friend setting up a new company? Can he take the clients with him?
Kind regards
AJ
Customer: replied 1 year ago.

Thanks Alex. Appreciate your help...

Yes he could definitely leave and I think most of the clients would go with him. There is no agreement to say that he can't take the clients with him.

However, he is reluctant to walk away from the company name, as they have spend a lot of time and money promoting the name and they have a twitter account with over 8000 followers.

Thanks

Expert:  Alex J. replied 1 year ago.
Hi,
Thank you.
I will prepare a response and revert to you as soon as possible.
Kind regards
AJ
Customer: replied 1 year ago.
Thanks. Appreciate it.
Expert:  Alex J. replied 1 year ago.
Thank you.
AJ
Expert:  Alex J. replied 1 year ago.
Hi,
Thank you for your patience.
The the first thing I would note is your friend probably needs to accept that this will end in one of three ways:
(i) He will buy the other shareholder out;
(ii) The other shareholder will buy him out;
(iii) The company will be dissolved or liquidated.
In my opinion I would look to start a new business. If the company is being implicated in VAT fraud the name may be damaged anyway. Further if he can force the company into liquidation he may be able to buy the name off the company in liquidation.
I will explain everything in turn.
The Law:
Other than potential fraud there are variety of offences this individual may have committed under the Companies Act 2006. If you see S.171 - S.177 of the Companies Act 2006 - he has failed to act with independent judgment, failed to act in the best interests of or promote the success of the company, failed to avoid a conflict of interest. Along with the claim for the stolen money, your friend could potentially bring a derivative claim against this individual under S260 of the Companies Act 2006 and sue him to return the money to the company. A claim under S.260 will still however leave him in business with a partner he doesnt trust in a deadlocked company.
Practical Steps;
-As a point to note your friend can report this to the police as it is potential fraud and potential theft
-What I would then suggest your friend does is the following have an informal (if this is even possible) with the partner with a view to having the money repaid.
- If the other partner refuses to negotiate your friend can then other:
(i) Make an offer to buy him; or
(ii) He could consider making an application to court to have the company dissolved on the basis that this is a partnership that has broken down. The company assets will then be sold or distributed for the benefit of the creditors and then the shareholders.
Baring this in mind how does your friend want to proceed? What does he want to get from the company?
I look forward to hearing from you.
Kind regards
AJ
Customer: replied 1 year ago.

Thanks Alex, that's great.

What would your perspective be with respect to the "fiddled" VAT bill?

Would my friend be partly responsible for that? He didn't know about it at the time, but it has now been brought to his attention of course.

I think they are going to dissolve the business, and my friend would then start an identical business with a similar name, and hope to move the majority of the clients across.

Many thanks

Expert:  Alex J. replied 1 year ago.
Hi,
Thank you.
Your friend cannot be held liable personally for the company debts on the face of it. As long as your friend is not implicated in fiddling the VAT bill then HMRC wont be able to claim against him personally. He will however need to co operate with any investigation or any police investigation.
You friend needs to be aware that if the company goes into insolvent liquidation then he will need permission to carry on using the old company name under S.216 of the Insolvency Act 1986 - this is just something to bare in mind.
Kind regards
AJ
Customer: replied 1 year ago.
Thanks Alex
I think it would be voluntary liquidation rather than insolvent liquidation?
many thanks for all your help with this. It's been invaluable
Expert:  Alex J. replied 1 year ago.
Hi,
No problem.
If the liquidation is a solvent liquidation then the prohibition under S.216 will not apply.
Please do not hesitate to contact me if I can assist any further.
Kind regards
AJ
Alex J., Solicitor
Category: Law
Satisfied Customers: 3557
Experience: Solicitors 2 years plus PQE
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