I am a director in a company, alongside another director, we are both 50-50% owners.
The company accountant is a friend of the other director, and they have personal dealings with each other.
I have been kept at arms length for years from the accounts, not through choice. However, a while back I have noticed some financial irregularities, cash drawings by the other director which he is unwilling to address.
I have asked the company accountant to look into these. He seems unwilling to get involved, and ignores all my contacts even though I am 50% owner, and a director in the company he does the accounts for.
I am looking for advice whether it may be worthwhile me getting an external auditor involved, as my company accountant is not representing me and won't even talk to me.
Any advice is really appreciated.
Replies (20)
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Request an audit
As a shareholder with 50% share capital, you can formally request that the company have a statutory audit, which will disapply the exemption from audit under the Companies Act 2000.
You should be aware that this will involve thousands of pounds of fees.
Speak to your other director / shareholder
Most accountants avoid disputes between directors like the plague, as it is a sure fire way to waste a lot of time and get blamed by whichever director thinks didn't act in their personal interests. Notwithstanding any personal friendship, I'm not really surprised that the accountant is resisting giving you ammunition that you might use against the other director.
If you think the other director is misusing the company's money then you should really take the matter up with him in the first instance. You should also suggest to him that a neutral accountant takes over the job, if you think there is bias against you. As a director-shareholder you have every right to know about the company's finances and have an opinion on who should act for the company.
If the worst comes to the worst, as your shareholding is greater than 10%, you can insist that the the company appoint an independent auditor to audit the accounts (although in small companies they also usually prepare the accounts). However this will cost the company a fair bit more to have the accounts audited, so best to avoid this if you can.
I would go further ...
Most accountants avoid disputes between directors like the plague, as it is a sure fire way to waste a lot of time and get blamed by whichever director thinks didn't act in their personal interests. Notwithstanding any personal friendship, I'm not really surprised that the accountant is resisting giving you ammunition that you might use against the other director. If you think the other director is misusing the company's money then you should really take the matter up with him in the first instance. You should also suggest to him that a neutral accountant takes over the job, if you think there is bias against you. As a director-shareholder you have every right to know about the company's finances and have an opinion on who should act for the company. If the worst comes to the worst, as your shareholding is greater than 10%, you can insist that the the company appoint an independent auditor to audit the accounts (although in small companies they also usually prepare the accounts). However this will cost the company a fair bit more to have the accounts audited, so best to avoid this if you can.
... and say you have a statutory obligation to know exactly what is in the books and accounts of the company as you have a fiduciary duty under law in respect of the companies funds.
This is from an ACCA guide on directors duties:
7.17 Directors are responsible for preparing annual accounts for each of the financial years of their company (section 394 CA 2006). They must not approve any set of annual accounts unless they are satisfied that they give a ‘true and fair view’ of the assets, liabilities, financial position and profit or loss of their company (and in the case where the company has subsidiaries and prepares group accounts, of the group as a whole) (section 393 CA 2006).
This is the whole document, which I recommend you read:
http://www.accaglobal.org.uk/content/dam/acca/global/PDF-technical/business-law/tech-tp-cdd.pdf
generous Old Grey
That was really kind - I appreciate you offeruing that . that could be valuable resource.
If I can i will return the complimient one day.
Thank you
Accounts
@shunt13
As a first step, do you receive the accounts you are entitled to receive as a shareholder? these alone may provide clue's as to anything else that needs looking at.
We are currently acting for a client who requires an audit due to a similar dispute. Whilst i agree with other contributors - avoiding the cost of an audit is obviously important - i would guess that the business relationship is close to breaking down and therefore the cost of an audit may be much better than the alternatives of selling / closing the business.
PM if you need any further help.
How is the business?
Whilst I agree with the above comments regarding your right to impose an audit this should really be a last resort and a lever as, in reality, the transactions that you are worried about may only be small in number and so to "carpet bomb" the lot may just be overkill.
Of as much concern is whether you and your co-director are still able to work togeher and whether this is an inication that you or s/he need to find a way to part company. Obviosuly if funds have been removed against your wishes or without yor knowlege by your co-director then this would need to be addressed in any settlement.
As pointed out above, you have joint responsibility for the records and accounts and so should have full access to the accounting records and to an explanation as to how the annual accounts have been prepared. So I'd suggest that, if you have not already done so, you demand both in writing and then get your own accountant to look at the areas that you are concerned about.
I, and I'm sure many on this site, would be only too happy to review any information you can gather and either confirm that something doesn't look right and needs addressing or put your mind at rest.
Feel free to PM me.
quite common
This is quite a common occurrence. In fact whenever two unrelated people approach me to discuss forming a new company, I insist on a shareholders' agreement and make it clear that both are entitled to full access to every aspect of the accounts on request.
In my view, you are entitled to ask for a breakdown of any item in the accounts. The accountant has a duty to provide that. End of story.
Whether you go further than this depends, I think, on what comes out of that. If you want to carry on working with this guy then hob-nailed boots are not required. Auditors are an expensive waste of time 90% of the time, just ask bank shareholders.
Do you have a shareholders' agreement? If so, is the agreed policy on drawings being adhered to? The answer to this must be your first step.
Draw a line
It sounds like the first thing you have to do is draw a line with regard to control of company funds and contact the bank to make it obligatory for both of you to authorise any drawings from the account from now on. If you don't do something to protect what's left then, as it all collapses, you'll find the account is emptied.
I can assure you that not all accountants stick together, most of us keep barge poles handy. There's good & bad in every industry and it makes sense to put a halt to anyone not acting properly.
Just to clarify "external audit"; the way in which it's been referred to above is in terms of the annual accounts, ie you will not approve the next set of formal accounts until an auditor has carried out their work. This is OK I suppose if you are approaching or have just passed a year end but if not you might have to wait months before an audit is imposed.
The audit will be designed to cover all aspects of a company's affairs, not just the crucial bits you are worried about. Yes the auditor will risk assess and would clearly look in detail at stuff you were concerned about but it's a bit like the garage keeping your car for a week to do a full service and repair some dents and missing lights, when all you want is for them to fix the clutch so you can drive it again.
So, what you need more is an external examination now of the key areas you are concerned about to identify where your co-director and accountant have not acted properly, this is what a lawayer would call for if you approach one to take legal action against your co-director.
By the way you refer to partner etc but I'm sure you are talking Ltd Company here? It's important as a director has legal duties to look after the wellbeing of the company, this is not always the case in a partnership.
It happens - but you must be tough.
In Crisis Management, I've come accross this frequently over the past 25 years. Sounds like you don't have a great deal of control over your 50% "partner" or the business.
Read your Articles to see where you stand.
If he still tries to bully you, appoint an Alternate Director to take the heat. Ensure that you are prepared to take equal responsibility, and take it.
Have an independent audit.
Arrange to have copies of Bank Statements and get on the mandate.
What type of business?
Is there cash or cards involved?
Do you see purchase invoices?
Do you see the payroll?
Lots of questions and deon't be surprised if it's worse than you thought it was.
JI
You have started now where do
you want to go.
To summarise
1 You believe that drawings (unauthorised?) have been taken from the Company account
2 You believe that the appointed accountant has worked with your co-director/shareholder against your interests
3 You suspect that your "business partner" is acting against the interests of the business.
Above there is some great advice. As Mr Scholes says contact the bank immediately and then confirm by courier/special delivery that all signatures on the account must be on all withdrawals. Instruct the bank that all cards issued whether debit or credit are to be cancelled immediately.
Send copies of correspondance to your co-director so that he can't accuse you of doing things behind his back. I am not sure how much your half share of the business represents but Mr Boyles suggestion should be followed. If you call the Law Society they can advise you of solicitors in your area that specialise in Company Law. Unless you have a friend who already uses such a practioner..
Good Luck
.
The secret negotiations with your supplier
may be a breach of fiduciary duty:
to quote
http://www.univie.ac.at/bwl/ieu/lehre/ws0506/Manchester/BL_2/company_dir...
"Industrial Development Consultants Ltd v Cooley [1972] 2 All ER 162
Cooley was the managing director of IDC. The Eastern Gas Board were not prepared to contract with IDC but they would contract with Cooley personally. Cooley did not disclose this fact to IDC but secured a release from his contract with them. Cooley then entered into a contract with the Gas Board. He was made account to IDC for the profit he had made from the contract."
and just for fun, it sounds like the related party reporting in the accounts is completely wrong!
Audit vs external accountant
Just to clarify what some above have said - an audit is a specific process that is followed whereas if you just get an independent accountant to review the accounts (without doing an audit) they will be able to focus on the areas of concern without needing to follow all of the audit process. This should be cheaper and quicker.
Auditor?
I think you would be better served using a forensic accountant to establish whether all monies taken out of the company by the other director were for valid business expenditure and/or agreed salary/dividends.
An audit of the financial statements is something completely different and will not get to the bottom of how much (if any) money has been misappropriated.
I am not a lawyer so am not in a position to advise on how easy this would be to achieve so I second the advice above to get a lawyer involved at the earliest opportunity.
Good luck.
Malcolm
Your Delimna
The best advice I can give you is to make contact with me.
I will kick both their [***] as this type of behaviour is highly, contemptible, unethical, lacks transparency,stinks, totally unprofessional and there may be other implications.
It sounds to me that you appear not to be aware of your legal powers and for far too long appear to have been subservient and allowed your other Director to “get away with it.
Step One
I would begin by finding out if the external accountant are registered and belong to a governing association. If they do you may have some leverage with them. If not, things could be more difficult.
A friend of mine has this exact problem at the moment. It's worse: they gave 2% of shares to the accountant and held 49% each. The accountant and other shareholder together are controlling the company and have taken out c. £20k.
A good company lawyer will be able to advise you further.
I also like the advice of using an external forensic accountant as opposed to an auditor, who will only slow down the process as they will be testing sales and expenses etc. I would rather focus on how funds have been misappropriated, how much, etc?
The relationship is probably beyond repair, so you should think about exit options (buy out, sell out, wind up, etc).
Forensic Accountant
I think that first of all you need to get a copy of each of your directors loan/current accounts which you are both legally bound to have signed and agreed when the accounts were prepared. Depending on what's in there you can then decide to engage the services of a forensic accountant or lawyer. Be careful what you say to the bank as if they feel that there is a disagreement with the directors and you have any loans etc they could freeze your account, which would make it difficult to trade.
Good luck
My accountant doesnt represent me only my business partner
I have a similar situation to the above ie I have a 50/50 partnership with another person and the accountant is someone they suggested as company accountant. From the beginning it seemed he only took instruction from her and they use a separate email account to discuss things they dont want me to be aware of. I have to send at least three emails (an original plus 2xrepeat) to get any answers from the accountant. The relationship with my fellow director has now completely broken down (partly because I am also earning the bulk of income and fed up with supporting another person) and I want to close the business or negotiate an arrangement for one person to go. The accountant originall offered neutrally "broker" a deal but so far has only expressed views completely in favour of the other party (even supporting her when she nicked the database and I removed her admin settings to protect a company asset). I have no trust in this person and want, as 50/50 partner, to appoint a neutral advisor and, in so doing, advise him he is no longer accountant. Can I do this as a 50/50 partner? (This was the orginal question in the email trail above but no one really answered it). The accountant has been involved for one year and has so far produced draft accounts.
kathykagora