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Alex J.
Alex J., Solicitor
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Experience:  Solicitors 2 years plus PQE
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A limited company is suspected of carrying on fraudulent/inappropriate

Customer Question

A limited company is suspected of carrying on fraudulent/inappropriate activities by a sole director. How can the shareholders report this and have it investigated?
Submitted: 10 months ago.
Category: Law
Expert:  Ben Jones replied 10 months ago.
Hello, my name is***** am a qualified lawyer and it is my pleasure to assist you with your question today. What types of activities exactly are being carried out?
Customer: replied 10 months ago.
The Limited Company in question is a company owning the freehold of a block of flats. The M&A require there to be 2 director signatures to carry on ANY company business. First Director blcoked this and with the help of a Solicitor firm has been carrying on transactions of thousands saying she is lending the Company her money to pay legal fees etc - when there are no lawful legal transactions the Company has entered into. we believe there is money laundering going on and the shareholders wish to have an investigation carried out. Who do they approach. Please give direct answers
Expert:  Alex J. replied 10 months ago.
Hi Thank you for your question and welcome. My name is ***** ***** my colleague has asked me to assist you - I am a company law expert. Does the company have a shareholders agreement? Also does the company have a banking mandate? Kind regards AJ
Customer: replied 10 months ago.
The Company does not have a shareholder agreement. Infact I do not even know what a shareholder agreement is. However the Company was incorporated in 1997 on purchase of the freehold. There were 6 shareholders - one acquiring 5 shares [50%] and the other 5, 10% each. The 50% shareholder appointed as the first Director and has been controlling the Company at the total exclusion of the 5 shareholders. My question has been what can the shareholders do to have her fraudulent activities investigated - you have deviated to shareholder agreement! even if there was such an agreement, it would not allow her to carry on such activity, with or without shareholder approval.
Expert:  Alex J. replied 10 months ago.
Hi, Thank you. Technically speaking the shareholders have two remedies:(i) Protection from unfair prejudice under S.994 of the Companies Act 2006 - this requires a court application and could force the majority shareholder to remedy any detriment he has caused to the company;(ii) Under S.260 of the Companies Act 2006- you could potentially sue the director for breach of his statutory obligations under S.172-179 of the Companies Act 2006 - act in conflict of interest, not act in the best interests of the company.Before you can consider these remedies - can you tell me about what the director has actually done? Has he stolen money? Also is there any way to reconcile the relationship going forward?
Customer: replied 10 months ago.
The Director has acted in this way : From the start she exercised her sole authority and embarked on taking shareholders to court for breach of covenants where there were no breaches. She charged the Company £000's in legal fees for these actions. Then she demanded that shareholders pay/reimburse their share of this "loan" to her. Needless to say the "solicitor" she paid £000's in legal fees is suspected of using the Company account and its books to launder money
Expert:  Alex J. replied 10 months ago.
Hi, Thank you. Has this been reported to the police? Kind regards AJ
Customer: replied 10 months ago.
Our aim of consulting you is to find out who/how/where to report what we believe the sole Director is doing. We have not reported anywhere or to anybody yet. Please guide us how to go about getting this done. There must be several government and Inland revenue type bodies that will look into this and bring them to justice.We are aware that she will not be able to recover 50% of expenses that she has charged to the Company as it was incurred in contravention of the Articles. But the solicitor involved has to be brought to justice.
Expert:  Alex J. replied 10 months ago.
Hi, Thank you. If there is a fraud being conducted and it involves a solicitor you can report it to two places:- Solicitors Regulation Authority - www.sra.org.uk- The Police - www.actionfraud.police.uk/​If you are looking to recover money as a result of the prejudice you have suffered as a minority shareholder you will need to sue the directors. The only issue is you will need to collate all the written evidence you have. Do you have emails or correspondence with the solicitor or bank?
Customer: replied 10 months ago.
We the shareholders have not been privy to ANY company information - we have been excluded from EVERYTHING. It is only when accounts are to be approved, the sole dictator director calls an AGM and demands that we approve the accounts and pay our share of £000 expenses "charged" to the Company without due authority.
Customer: replied 10 months ago.
All we see is what is submitted in Returns on the Companies House Returns.
Expert:  Alex J. replied 10 months ago.
Hi,
Thank you.
The director cannot force you to approve the accounts, the company is deadlocke 50/50.
Are the expenses itemised or are they for major works?
Kind regards AJ
Customer: replied 10 months ago.
The shareholders have NO details or breakdown of the expenses. We only see the final figure on unaudited abbreviated accounts filed at Companies' House. We believe the Accountants producing the accounts should be answerable too. Now that you know the background, which is a "one stop body" we can handover to, (1) to investigate, (2) to bring to book the sole Director, the lawyer and the firm of Accountants?
Expert:  Alex J. replied 10 months ago.
Hi, Thank you. There is no one body responsible for policing these matters. The company would have to be in liquidation in order for the secretary of state to take action against him personally and the solicitor is regulated by the solicitors regulation authority. If fraud has been committed then this is a crime and should be investigated by the police. Kind regards AJ

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