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Buachaill
Buachaill, Barrister
Category: Law
Satisfied Customers: 10408
Experience:  Barrister 17 years experience
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I am a sole director and a 50% shareholder in a FCA regulated

Customer Question

I am a sole director and a 50% shareholder in a FCA regulated life assurance company. Myself and the other 50% shareholder sell life assurance policies to the general public as a broker. The company is paid commission by the insurance companies when we sell products and we then pay ourselves the commission. I have noticed that the other shareholder has had a lot of cancellations where the compnay had to pay the insurance houses back the commission, but in tur has not paid the money back to the our company. I worked this out to be quite a lot of policies in the region of 35k. As a director, I suspended him from working through the company, have asked for the money back, but he says it's not repayable as there is no contract. Since I suspended him, about 20k more in policies has cancelled and the company is now in debt to the insurance companies. We do not have a shareholders agreement or any contracts between eachother. We always paid any monies owing back before, so I am hoping that I can use this as a thread to ask him to repay the money if it went to court, as this is what we always did. He doesn't work at the company anymore and is still a 50% shareholder. Can I do anything?
Submitted: 1 year ago.
Category: Law
Expert:  Buachaill replied 1 year ago.
1. The first thing you need to realise is that a contract or agreement does not have to be in writing in order to be enforceable. It can be oral and evidenced by a course of conduct - as is the case here. So, it is not correct to assert, as your fellow shareholder says, that there is no contract between you. Each of you has a contract with the company in relation to the obtaining of commission. Breach of the terms of that commission agreement entitles the company to sue or for you to take, what is known as a derivative action, to recoup the commission unlawfully obtained and which has not been properly repaid.
Expert:  Buachaill replied 1 year ago.
2. However, from a tactical point of view, you would be better off winding up this company which is owned 50% each as otherwise you will never free yourself from this (chancer) business partner. You need to start again with a new vehicle where you own the business and which is removed from this type of unlawful behaviour. Otherwise, as he is 50% shareholder he will continue to have a big say in your business.
Expert:  Buachaill replied 1 year ago.
3. Accordingly, I would advise you to petition the court for a winding up of the company on a just and equitable basis and get a favourable liquidator appointed who will pursue your business partner for the un-returned commission on behalf of the company. In this way, you can ensure the money is returned whilst at the same time, moving on, and away for the clutches of this business partner.
Expert:  Buachaill replied 1 year ago.
4. Please RATE the Answer positively as unless you RATE the Answer positively your Expert receives none of the monies you have paid the website so there is no incentive to answer any further questions.
Customer: replied 1 year ago.

I am considering winding up the compnay and starting again as you stated. However, where are mentioned either dirivitive action or to sue, can I try to just sue through the court without too much expense as dirivitive action is an expensive claim, or will this have to be legally dealt with via a dirivitive claim as he is a shareholder?

Expert:  Buachaill replied 1 year ago.
5. Regrettably, the claim would have to be dealt with as a derivative action as you, personally, are not owed the money. Instead the money is owed to the company, not you personally. So any action would have to be taken by the company. This is why I have suggested appointing a liquidator to wind up the company and to sue for the commission which was previously overpaid.
Customer: replied 1 year ago.

Hello again

Thank you for the information so far. I now understand that I will have to claim via derivative action as I am not personally owed the money.

However, can you clarify if the company can just put a claim in against this shareholder instead (as the company is owed the money)? I understand that he will still remain a shareholder. but, if I as the sole director can prove his wrong doings, is this a possible solution to take him to court relatively easily without too much expense?

Expert:  Buachaill replied 1 year ago.
6. You need to pass an ordinary resolution in order that the company take legal proceedings as he can vote against the company with his 50% shareholding from taking the action. That is why a derivative action is necessary - essentially you can take a case in the name of the company seeking the return of the monies and he cannot block this by voting in general meeting against this course of action. A derivative action is one taken in the name of the company which has not been approved in general meeting and in relation to which the body of shareholders might not approve. Generally, this is how you overcome the difficulty that there is not 50% + 1 share in favour of taking legal action.
Customer: replied 1 year ago.

I see. So the company cannot sue him as he can vote against this action. Therefore dirivative action is the only way. In this case a windup seems sensible.

Thank you for the advice

Expert:  Buachaill replied 1 year ago.
7. You are welcome. Please RATE the answer.
Buachaill, Barrister
Category: Law
Satisfied Customers: 10408
Experience: Barrister 17 years experience
Buachaill and 2 other Law Specialists are ready to help you
Customer: replied 1 year ago.

Hello again

I hope I can still ask one last Q in relation to this thread. My solicitor has said he has not heard of the need for a board resolution which means that I cannot sue the shareholder. Can you clarify where this is stated in the companies act? Thank you so much for all of your insight.

Expert:  Buachaill replied 1 year ago.
8. A board resolution is necessary so the legal action is the act of the company. Otherwise the legal action lacks validity and can be overturned by a simple board resolution or a plea in the action by the other 50% shareholder that the company lacks the necessary capacity to take the legal action.
Customer: replied 1 year ago.

Perfect. Precise and prompt! Thank you.

Customer: replied 1 year ago.

End

Expert:  Buachaill replied 1 year ago.
9. This is not contained in the Companies Act. It is just a general principle of company law.
Customer: replied 1 year ago.

I agree with the legal standing here you are quoting. It's just that my solicitor is wanting me to authorise the company to sue him and I don't want to waste the money, as I agree with you.

My solicitor does agree that a resolution needs to take place and will fail as you said, but they say that as I am the only director of the company (the defendant a non director with 50% shareholding), that I can sue on the grounds that as a director that deals with the companies day to day decisions, that a decision to bring legal proceedings is up to me.

They say that this is a directors decision and not a shareholders and I can argue that this is in the best interests of the company as the sole director to sue him.

Am I receiving the wrong advice from my solicitors, as they say I can claim as a director rather than being the other 50% shareholder and there is nothing he can do to stop me.

I am worried about allowing them to put forward a claim and finding its all a waste of time.

Customer: replied 1 year ago.

I am happy to pay the additional amount but not sure where to do this. I can't see the area where a tip can be donated.

Expert:  Buachaill replied 1 year ago.
10. Dear Jamie, My own view is that you are better off to make the claim, as this will engage the other 50% shareholder in settlement negotiations. The best outcome for you would be if he agreed to walk away from the company in exchange for payment of some or all of the commission monies owing. Suing him puts the ball into play. You can then negotiate around this legal action. It would be cheaper to get him to leave his 50% shareholding to you rather than you setting up another company. So, use the legal action as a means to pressure him and then get him out of the company.
Customer: replied 1 year ago.

Thank you. This makes sense as I agree this will put pressure on him to 'hopefully' negotiate with me so I can aim to gain his 50% share and then carry on alone as a 100% shareholder. If however, he decides not to take my court claim seriously, should I assume that I can take this claim through the courts and that the claim will be heard by a judge, or will I indeed be back to square one as he can argue that the claim should be dismissed as it has not been authorised via a shareholder board resolution?

Expert:  Buachaill replied 1 year ago.
11. He can certainly argue the lack of a a company resolution. However, in order that he does so, he needs to put money into litigating the claim. For him, there is only a downside. So it is in his interests to settle the claim. Be aware that it is also a fraud on the company to seek to take the company assets without the company's consent. So you should ensure you plead this ground as well. Such a case does not need a resolution to be taken as fraud never needs formalities to be prevented.
Customer: replied 1 year ago.

Thank you for the comprehensive adviceCustomer/p>

Expert:  Buachaill replied 1 year ago.
12. You are welcome. If you can, please leave a bonus.

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