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Ask Buachaill Your Own Question
Buachaill, Lawyer
Category: Republic of Ireland Law
Satisfied Customers: 10398
Experience:  Barrister 17 years experience
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Our company was set up by my Father & I over 25 years ago as

Customer Question

Our company was set up by my Father & I over 25 years ago as a workshop. 15 years ago we engaged the services of a software developer to have software developed to run the workshop. We decided to sell it to other workshops so we set up a software company and gave the software developer a 14% shareholding in it, as well as a salary. The software company was wholly owned by the group, consisting of the workshop business & another company, of which my parents & I were the only shareholders. We subsequently gave a 4% shareholding in the software company to another development contractor in lieu of payment for work done. Subsequently, the original software developer was made a director of the software company, but resigned his position 3 years ago to take up employment with another company.
The only subsequent communication from the developer was 18 months ago through his solicitor. He wanted the company valued for the purpose of possibly selling or seeking value in his stake. We responded to the solicitor with an option having them value the company, but did not receive a response. We have had no communication from the contractor for the past 10 years.
The software company has struggled over the past 4 years, largely because I have not been able to devote enough time to it as the rest of the group business required my full attention. The software, although still selling, has aged and needs modernisation. As a consequence, the software company has been supported by the group business & currently owes it ????
We have decided to completely redesign the software from the ground up & outsource the development to a 3rd party. All of the design ideas in the new software have come from my own background & experience of 25 years in the industry. None of the code of the old software has been used in the new. It is a completely new system. We have set up a new company, outside of the group, to market the new software, of which I am a 90% shareholder. Our plan now is to seek investment in the new company, however we are concerned that new investors will want to be assured that there can be no claim from a minority shareholder in the old software company for a share of the new company. For that reason, we want to clean up the shareholding of the old company by either buying out the legacy shareholders, which based in the current valuation of the company should be a modest cost, or if the legacy shareholders refuse to sell, then using the new company to compulsorily acquire the old company.
Question. Can the new company compulsorily acquire all of the shares in oldco and what constitutes fair value?
Submitted: 10 months ago.
Category: Republic of Ireland Law
Expert:  Buachaill replied 10 months ago.
1. Dear *****, there is no such thing as being able to compulsorily acquire shares in a different company. Such a provision does not exist. Here, you are best off keep the new company totally separate from the old company and simply licence whatever software or list of clients are necessary for the New Company to run effectively. They are two different entities in law and different obligations are owed to two different sets of people in the running of them. If you entwine the two of them, you are likely to run foul of provisions on fiduciary liability for transferring the assets of one company to a new company. So, I appreciate there are difficulties in that investors in the new company might want some guarantee about the old company. However, the aim should be to wind up the old company and pay everyone off from it. Then use only the new company to run the new business.
Expert:  Buachaill replied 10 months ago.
2. Please Rate the answer as unless you Rate the answer your expert will receive no payment for answering your Question.
Customer: replied 10 months ago.
HiCustomerI recently read that under section 204 of the Companies Act, where shareholders of 80% in value of the shares of a company agree to the acquisition of that company, then the remaining shareholders can be "dragged along" under the same terms. Does this apply here? Our objective for the new company is to raise funding from either seed funds or angel investors or possibly VCs as quickly as possible. Any suggestion of possible claims from legacy shareholders, whether justified or not, could cause great difficulties & delays in that process. Winding up the old company would not be straightforward either as we have over 100 existing customers using our software, most of them on support contracts. Ultimately, we plan on transitioning them to the new software, but that will take up to 2 years.
What to do???
Expert:  Buachaill replied 10 months ago.
2. Section 204 deals with the situation where there is a reduction in a company's share capital or a reorganisation. That is a very different situation to one company forcing itself as suitor on a different company. It would not be applicable to the situation you have outlined. Ultimately, it is a matter for yourself what you do. However, the reason you would wind up the original company would be to have a "clean break" between the two companies so there is no issue with legacy shareholders.