Directors in dispute!

Directors in dispute!

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I have a client that has a friend in need of some advice. He is a director (A) and 50% shareholder of a company, the only other director (B) is also a 50% shareholder. Apparently B is causing problems as his work is reliable, he upsets staff, doesn't pull his weight etc. B has suffered some health problems and appears keen to sell his shares to A, but he has requested £500k to be bought out. I have only had a brief chat with A and seen the abbreviated accounts, but the valuation does seem excessive. Another problem is that the current accountant is an old friend of B. So A does not trust him, or agree with the valuation.

A is getting tired of B's behaviour and wants to just walk away, but there is around £80k of equipment and £250k cash in the company.

I would rather stay out of this, but my client is sure that A will want me to be his accountant once he has either taken over the company, or started a new one.

I want to suggest to A the easiest, cheapest and quickest solution to resolve this (i.e. not winding up or an expensive legal dispute).

I was thinking to first advise A to get a third party professional valuer to prove an accurate valuation of the company and if the valuation is a bit steep advise the directors to go through a mediation process (specialist accountant of commercial lawyer) as I assume this will not be prohibitively expensive.

Has anyone else had a similar experience and have any suggestions?

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By Sheepy306
04th Feb 2014 19:49

Not enough info
Lots of questions, not enough facts.

What else is on the balance sheet? With £250k cash and £80k assets there is the potential for a reasonably high valuation even disregarding any goodwill. What's the overall balance sheet value for starters. It's not possible to get an idea of valuation without seeing the full accounts, for all we know they could have made £500k profit and taken £500k dividends.
Is Director A able to start up again on his own? What would the costs be? What would he be willing to pay simply to keep the business going (and therefore effectively the goodwill).
Director B is actually in quite a weak position as it is rare for an external investor to buy 50% of a small business. There's plenty of room for negotiation.

My advice......get the full accounts, adjust to net maintainable earnings, pick out a reasonable multiplier (number of years you want to get your money back) and see what the figures show. An independent accountant would definitely be needed if a price can't be agreed upon initially. I'm a fan of mediation, although it can be lengthy, but if Director A won't pay a figure that Director B won't budge from then it's time to close down the business and for Director A to start looking for a way to set up on his own.

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By ptax
05th Feb 2014 10:03

I don't have much info

I have very little information, A wants me to go and see him and have a chat, I just wanted to make sure I had an idea of his options before we meet.

The balance sheet is showing net assets of £300k (debtors £170k / creditors £200k). I believe the £80k equipment is mainly vans. I only mentioned the assets previously as A was concerned about just walking away and leaving them, well mainly the cash, as B has insisted that it is a good idea to build up the cash reserves in the business (under advice from his accountant apparently).

From my very brief discussion with A, he appeared keen to start up again and bring his son into the business. I understand that they rent a business unit, which is mainly used to keep the vans and a few old pieces of equipment, my client doesn't think it is really necessary that they have a unit. A is 60yrs old, so I expect he will want to pass the business on to his son in the not too distant future.

I will go and see him and have a look at the full accounts so I can roughly see if the £500k valuation is a ludicrous figure and I will see how we go from there.

Thanks for your thoughts!

 

 

 

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