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Alex J.
Alex J., Litigator
Category: UK Law
Satisfied Customers: 3692
Experience:  LLB, LPC, DELF
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I am a Director & Shareholder of a small financial advisory

Customer Question

Hi. I am a Director & Shareholder of a small financial advisory company. We have a 'rogue' director / shareholder, who seems to be under the impression that his 'input' (time/fee's) into the company is far greater than any of the other fee earners (myself and 1 other). He is the self appointes MD by title only, and we have stated that we do not need an MD.
As such, despite several meetings including a solicitor at one point, he refuses to agree to a 100% fair corporate structure and shareholders agreement that would distribute any excess profits annually / or any proceeds from the sale of a company in a completely fair manor - i.e. a calculation of share / profits as a % of total income brought into the company from its inception.
We want to remove him, so that the company can continue and thrive without his negative behaviour and time wasting (his selfish position is driven by his appalling personal situation & expenditure, meaning he is unable to live on circa £8,000 net per month!).
1) My question is, can one or two of the Director / Shareholders cause the company to be dissolved? (My understanding is that this needs to be unanimous board decision).
The company could easily continue and be profitable, if the rogue director and his accomplice - (a former employee of his, who will always side with him) - were to exit.
Submitted: 2 years ago.
Category: UK Law
Expert:  Alex J. replied 2 years ago.
Thank you for your question and welcome.
My name is ***** ***** I will assist you.
What percentage of the voting share capital do you respectively own?
How many directors are there in total?
Kind regards
Customer: replied 2 years ago.
Hi AJThe rogue cobbled together a complex share structure when we originally established the company.For example, the A shares appear to relate to 'value' only and have no voting rights attached to them.There are 100 B shares, which have voting rights and there is a 25% split between 4 Directors.Mike
Expert:  Alex J. replied 2 years ago.
Thank you.
So the rogue has only 25% of the voting shares?
Do the other two directors support you or the rogue?
What assets does the company have?
To answer your question - to dissolve or liquidate the company, you would need a special resolution - that requires 75% of the voting share capital to vote in favour. Currently the company is deadlocked.
I look forward to hearing from you.
Kind regards
Customer: replied 2 years ago.
Hi AJThe rogue has 25%of the B voting shares, as does his sidekick (voting 25%). She supports the rogue as far as we can tell, although she is no naive that she seems to change her mind like the wind (she is not a qualified person, so arguably the only way that she can earn a living is via the company, but we suspect that she would support the rogue).The other director and myself completely trust and support each other in all decisions.The 'assets' the company has, are purely the 'recurring' income stream derived from the individual client banks of the three fee earning directors. Myself, one other and the rogue. It is complicated, but the rogue has brought in circa £500k, myself £400k and the other fee earner £160k since inception. We have all worked extremely hard to build up the company, in a variety of ways.He constantly argues that his input to the company (time & fee's) is much greater than others, and has used this in the past to bully his position - even though the B voting shares are all 25% equal. (Eg. he even started an argument last week in front of a lawyer, at a meeting to organise a 100% fair shareholders agreement that attributes any profit distribution and value on any sale of the 'company' to a third party - based on a recalculated % share of the total income brought to the table since inception).We also want him stripped of his self appointed MD title, as he also is under the impression that this awards him greater authority over us all, and we are considering an 'amicable' removal of him from the company, taking his clients with him and the sidekick will follow for certain.ThanksMike
Expert:  Alex J. replied 2 years ago.
Thank you.
I will a write response to this with my opinion. It will take a little while so please do not be concerned if you do not hear from me right away.
Can you confirm:
- Going forward do you actually want to work with him?
- Would he be willing to buy your shares or sell you his shares?
- Do you have any form of shareholders agreement in place?
Kind regards
Customer: replied 2 years ago.
Thank you AJ - much appreciated.1) In answer, no we don't want to work with him. He is responsible for creating a ridiculous cost base for the company - that was never sustainable (expensive offices that are barely used etc), and he is detrimental to general 'feel' and success. We could easily have a sustainable & profitable business without him.2) On the purchase / sale of the A 'value' shares, I am not sure. The ideal would be for him to leave and take his clients (& their income stream) with him, and therefore the value that is attributed to his A share holding would be nil.3) We have a shareholders agreement, that is unfair an inequitable (as it essentially would fix the rogue's holding of 'A' value shares at 40% in perpetuity - and we are trying to have revised and agreed at present. I shall attach to this email (assuming it is confidential?).Kind regardsMike
Expert:  Alex J. replied 2 years ago.

Hi, Thank you. I have received the SHA, I am reviewing it now. Kind regards AJ

Expert:  Alex J. replied 2 years ago.
Thank you.
My apologies for the delay.
I have reviewed this shareholder's agreement - can you confirm that the A Shares definitely do not have voting rights?
If you wanted to vote this individual out as a director you can do so with a 51% of the voting shares passing an ordinary resolution at meeting of the shareholders on special notice (21 days).
To simplify the situation your options are
- He buys you out - obviously subject to watering down the restrictive covenants - so you can go and start again;
- You buy him out - taking into account the repayment of his loan;
- You apply to court for the dissolution of the company and distribution if its assets.
The only other option is an application for unfair prejudice of a minority shareholder under S994 of the Companies Act 2006 - however if the only option that is viable is to part ways from him, an application under this section to restructure the share capital is not really workable.
I would also note the following:
- The MD title - this is nothing more than a term of art - unless you have given the MD special rights under the Articles, all directors are equal unless you have appointed a chairman - you could strip him of this title by board resolution at the next meeting - as long as you have enough people to out vote;
- There is nothing in the SHA that allows him to charge additional sums for his time. The only claim he might have is perhaps to claim repayment of his loan.
What is the immediate issue he is causing? Is it the additional claim on the company finances?
I look forward to hearing from you.
Kind regards