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Alex J.
Alex J., Solicitor
Category: Law
Satisfied Customers: 3473
Experience:  Solicitors 2 years plus PQE
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I understand that the Directors Loan Account are financial

Customer Question

I understand that the Directors Loan Account are financial records that report all transactions between Directors of the Company.
My wife is a shareholder of a company and is neither a a director or an employee.
Despite this fact, her shareholding dividends have been classed as Directors Dividends/Loans and appear as transactions in the Directors Loan Account. These/her dividends have not been paid to her, and instead, they have been used to clear the DLA. Although she has refused to sign to sign these accounts, they have nevertheless been "signed off" as correct by both the Company Directors, and the Company accountant, and indeed filed with Companies House.
The shareholders dividend that she should have been entitled to was £27,000. What should she now do?
Submitted: 3 months ago.
Category: Law
Expert:  Alex J. replied 3 months ago.

Hi, Thank you for your question and welcome. My name is ***** ***** I am a company law expert. Was the dividend proposed by the directors and approved by shareholder resolution? Did other shareholders receive their dividends? Kind regards AJ

Customer: replied 3 months ago.
Hello Alex J
The dividend was proposed by the directors but not approved by a shareholder resolution. There are two other shareholders involved, (plus my wife) making three shareholders in total. It was clearly apparent to the three shareholders at the AGM that all three shareholding dividends had been entered as transactions on the DLA. Unfortunately, the company accountant was not present at the AGM; therefore, the directors were advised by the three shareholders to seek independant audit/accountancy advice relative to these transactions appearing as DLA activity. This proposal was agreed by the directors. Clearly this has been ignored, as the financial statements have been "signed off" by the directors and filed at Companies House as being correct. Neither my wife or the other two shareholders have received a dividend.
She has however received a letter which requires her signature which after signing, will then receive a dividend of £654.00? This is a shortfall of £26,346 which she is entitled to. (dividend should be £27,000) The other two shareholders figures are exactly the same as my wife. I trust this information assists as to whether shareholders dividends should be classed as a seperate activity, or, is it correct that they are entered as transactions on the DLA? It would be helpful if your answer is the former, what is the legal position of the directors and the company accountant? Thank you, ***** *****
Expert:  Alex J. replied 3 months ago.

Hi, Thank you. Who are the directors? Your wife cannot have a directors loan if she is not a director. Shareholder funds (dividends) should not be classed in the loan accounts. The directors have potentially breached their obligations by filing incorrect statements. Can the shareholders seek to remove the directors? What has actually happened to the money? Have the directors taken it?

Customer: replied 3 months ago.
No the directors have not taken it.
I believe they have deliberately misappropriated the DL to stop shareholders dividends from being paid
To try to simplify. I will take just one director as an example.
The director draws £30,000 pa in dividends of £2,500 per month. His spouse, (a shareholder, and not a director) also draws a shareholders dividend of £2,500 per month. This makes the director and his wife's financial earnings to £60,000 pa. However, his wife's shareholding dividend transaction has also been entered on the DLA as a DL.
The DL now shows a figure of £60,000 and not £30k. Let's assume the company makes a np of £60k.
The director clears the £60k DL leaving £Nil to be divided between the other shareholders,.
If the DL had been just the directors dividend of £30k, there would have been £30k to have been divided between the other shareholders. So back to my original question, are shareholder dividend transactions entered on the DLA?
If they aren't, has my wife been defrauded? Have the directors and the company accountant committed a criminal offence. I think director dividends/loans and shareholders dividends are two completely different and separate matters. I need proper legal advice however that says YES, you are right in your assumptions.
Expert:  Alex J. replied 3 months ago.

Hi, Thank you. Based on what you have described this does sound like it could be fraud. Is it just the one shareholder and her husband who are doing this action? Does the other shareholder support your wife's concerns? The first step would be to remove the director who has done this so you can get all of the financial statements from the accountant. That way you can start compiling evidence of the fraud? I look forward to hearing from you. Kind regards AJ

Customer: replied 3 months ago.
Thank you for your answers, you have been very helpful. I now have sufficient information for my wife to to take to the forthcoming meeting on the 18th August.Neville Shaw
Expert:  Alex J. replied 3 months ago.

Hi, Thank you. ***** can assist any further please let me know. I think the best way forward would be to pass an ordinary resolution and remove the offending director. You can then look to sue him on behalf of the company to recover any misappropriated monies? Kind regards AJ

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