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James D. Ford
James D. Ford, Solicitor
Category: Australia Law
Satisfied Customers: 1601
Experience:  Consulting Principal at Nexus Law Group
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How do I get out of a solvent company, and walk away without

Customer Question

How do I get out of a solvent company, and walk away without the potential of future liabilities, when the other shareholder in the pty ltd company won't sign a release?
Submitted: 2 years ago.
Category: Australia Law
Expert:  James D. Ford replied 2 years ago.
Hi, is there a shareholder agreement? or partnership agreement in place? that provides for the event that one of the shareholders/partners wants to exit the business?
Expert:  James D. Ford replied 2 years ago.
In order to terminate your exposure to liability... and the ongoing running and management of the company - you can resign as a company director by giving written notice to company.. 203A A director of a company may resign as a director of the company by giving a written notice of resignation to the company at its registered office.
Expert:  James D. Ford replied 2 years ago.
The above assumes your company has "replaceable rules" rather than a company constitution...If there is a constitution, we would need to look at the constitution for the process to be followed (if any)...
Expert:  James D. Ford replied 2 years ago.
I await your responses regarding agreements, etc, and the replaceable rules v. constitution.. before proceeding further, kind regards, James
Expert:  James D. Ford replied 2 years ago.
If there is no Shareholders agreement, or company constitution which can assist you... a Court cannot order a sale unless what is commonly referred to as oppression is found to exist and the Court is persuaded that that is the best course to take in resolving the matter. The most commonly used litigious options by shareholders who have fallen out involve:instituting proceedings under the ‘oppressive conduct’ provisions of the Corporations Act (the ‘Act’)instituting proceedings in respect of the breach of a director’s duty; orbringing an application to wind up the company under the Act (however, if the company is solvent... the consent of the other party is required.. so this third option is not available).
Expert:  James D. Ford replied 2 years ago.
Kind regards, James
Expert:  James D. Ford replied 2 years ago.
Note - minor correction - the Court may decide to wind up the company (the third option above), as one of its options to make orders... if oppression, is able to be demonstrated, and it is decided this is in the best interests of the company. The Court has a wide discretion in making findings of oppression...An accepted example of oppressive conduct includes - for example: A combination ofthe inability to sell out of a private company where improper exclusion from management has occurred and there is no reasonable offer to buy the oppressed party’s shares; andpaying excessive remuneration to the person having control of the company.
Customer: replied 2 years ago.

Thanks James.

There is no partnership agreement of any kind in writing. Only the company.

The company is an "A Company Limited by Shares", and there's a booklet outlining the "constitution".

In the booklet, there is point 10 203A, stating a director can resign.

My concern is that I am one of the guarantors for the mortgage on the building complex.......... My understanding is that unless the other director signs a release, and then subsequently Suncorp Metway accept the release, then I will continue to be liable for that loan. And that's my worry/reason for not walking out earlier.

It's now gotten to the point though where I can't stay. It's killing me physically and psychologically. I get bullied and harassed over not taking more responsibility (as it is I handle ALL the admin, books, finances, rostering, ordering, sales, tax, probs, situations etc, as my business partner has no idea about anything but working as a short order chef in our shop. I set the shop up, the layout, the systems, the suppliers, the till, the menu etc, etc. But now he overules me at every turn. Aside from the upsets over it all, he has increased the food portions no end to a point where our supply costs are 45%. We have our shop in one of the units we own and we don't take wages, at all.....Hence it being convenient to "make" me stay, all the while saying at the end of the day he'll be taking extra profits because I don't pull my weight and "everyone knows it"

Given the scenario, is there anything I can do to get out of this without future liability?

Thanks,

Carmel

Expert:  James D. Ford replied 2 years ago.
Hi Carmel, Based on what you have advised, it appears as if the Company "constitution" is actually the standard replaceable rules established by legislation, as the number you have quoted matches exactly with the number I have quoted above.... The replaceable rules do not contain any mechanism under which you can force your way out of the company, without a Court order. You could resign as a director, as I have indicated - and whilst that solves your potential liability as a director.. it will not change or alter the personal guarantee you have signed with the Bank... so whilst it is difficult, it is recommended you stay as a director at the moment - so you can ensure you are in the loop as to what is happening in the business, and make sure the company remains solvent to the best of your ability. At the same time, based on what you have advised, your only way out is to negotiate with your co-shareholder, or tell them they face a Court battle, which will be expensive! I recommend, as a first step you instruct me to draft a legal letter spelling out the situation to your fellow director. If you request it, I can forward a quote for legal services. If this letter is ignored, then you need to carefully consider a Court application, couched in the terms I have mentioned above, seeking orders to wind up the company, based on the currently "untenable" position of oppressive conduct by your fellow director. You need to make sure you can prove the oppressive conduct conclusively... the fact that your fellow director takes wages, and you do not... maybe enough already... or you may have to wait until, your fellow director takes profits (without giving you any).... as he has indicated he is planning on doing. I can also provide a quote to assist you with this process (if required). Please accept and rate my response. Kind regards, James
Expert:  James D. Ford replied 2 years ago.
Please ignore the reference to the Contract... (this was related to a separate query..) the offer of the phone call stands. Cheers, James