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Jo C.
Jo C., Barrister
Category: Law
Satisfied Customers: 32426
Experience:  Over 5 years in practice
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I would like advice on the following scenario and any steps

Customer Question

I would like advice on the following scenario and any steps that need to be taken.1. There are two companies Company X and Company Y. Company X set up and invested money to build and develop Company Y over a period of two years. In the beginning Company X had two directors A and B and these individuals were also directors of Company Y. Company Y also had a third director, director C.2. The share ownership of the companies was as follows:Item ID Shareholders Company X Company Y
1 Director A 75% n/a
2 Director B 25% n/a
3 Director C n/a 25%
4 Company X n/a 75%3. The companies were incorporated as separate limited companies but all of the business systems, IT software and hardware used to run Company Y are paid for and managed by Company X.4. The bank accounts of Company Y were held under the same bank account as Company X as separate checking and currency accounts. Only the directors A and B have access to these accounts.
5. After two years, due to clashes between directors A and C, it was decided that the businesses would be separated – and the following steps were taken:a. Shares of Company Y owned by Company X (Item ID 4) were sold to Director C for a nominal sum so that the share structure changed as follows:Item ID Shareholders Company X Company Y
1 Director A 75% n/a
2 Director B 25% n/a
3 Director C n/a 100%
4 Company X n/a 0%• All shares of Company Y owned by Company X have been formally transferred to Director C and recorded by Companies house although Director C has yet to pay the nominal sum agreed for these shares.b. A new and separate sterling bank account was set up for Company Y which was controlled by Director C
• Director B was included as a signatory on the new account
• A currency account is also being setup, but the process has yet to complete.c. Some systems were transferred to Company Y such as mobile phones and some non-critical softwared. Ownership of key business systems that were used by both companies such as sage and sharepoint were retained by Company X.e. A reconciliation was prepared and agreed between all of the director’s. The reconciliation accounted for Company X’s initial investment into Company Y over the first two years of Company Y.
• Company X has raised an invoice for the reconciliation lump sum which has been approved by Company Y.f. A monthly management fee was also agreed to cover the ongoing management of IT systems such as Sage, sharepoint and a number of cars that were leased by Company X but used by Company Y.
• Invoices for the management fees are raised on a monthly basis by Company X.6. Company Y is not preforming as expected and we do not expect to continue receiving the agreed management fee (f) and not expect to ever receive the agreed lump sum reconciliation figure (e).7. Company Y is expected to receive a large payment into a currency account that is still managed by Company X. This majority of this payment is due to be transferred to a client of Company Y but the said payment would be enough to cover the remaining management fees and the lump sum reconciliation figure.Under these circumstances ss Company X entitled to keep the payment coming into the currency account (7) as payment for the invoices it has raised (e. and f.)?
Submitted: 10 months ago.
Category: Law
Expert:  Alex J. replied 10 months ago.

Thank you for your question and welcome. My name is ***** ***** I will assist you. Do you have a written agreement for the management fee? Is Company Y solvent? Do you have a detailed record of the arrears owed by Company Y? Kind regards ***** ***** I am leaving the office shortly so please do not be concerned if you do not hear from me until the morning.

Customer: replied 10 months ago.
Hi AJ, We have a signed agreement for the lump sum reconciliation (the reconcilation is essentially a detailed breakdown of what they owe) and the monthly management fees. We have invoices for all of the above that have been approved by Company Y. Company Y is solvent.Kind regardsAN
Expert:  Alex J. replied 10 months ago.

Thank you. My apologies for the delay - the only problem you could with hold the money until payment is forth coming on practical terms - but without an agreed lien over the monies you would have to account to the company for money that belongs to them. You would need a "Deduction set off or counter claim clause" at the minimum to claim against these funds. Also if the company is contemplating is struggling and subsequently goes insolvent, you receiving this money could be a preference which would be subject to challenge by a liquidator. Is the company going to carry on trading? Have you asked if you can offset this money against what you are owed?