Co-habiting Directors have fallen out and one refuses to pay dividends

I think this is the right Group. I am sure this sort of thing happens all the time.

2 Directors living together but not married, 50/50 shareholding, one actively earning fees, the other is CoSec, no employees apart from active Director who is paid the minimum, dividends always paid 50/50, loans taken against future dividend throughout the year.

Relationship breaks down, active Director tells Companies Hse CoSec has resigned when she hasn't, active Director refuses to pay dividends to non-active Director even though cash is accruing as normal through monthly invoicing, active Director sets up new company doing the same thing with the same client(s), old Company not closed and not accruing new cash.

If dividends have always been paid and no decision has been taken by shareholders to not pay a dividend, can the active Director retain all funds from old company without any liability to pay dividents to existing shareholders (apart from himself)?

The joint property issues are another thing altogether!!

Many thanks for any advice and/or experiences.

 

Comments
davidwinch's picture

Steer clear!

davidwinch | | Permalink

There is clearly a conflict between the spouses.

I am not clear from your post whether the co-secretary was also a director or not.

In any event I would suggest that you advise both parties to seek their own (separate) advice from solicitors and then keep your head down and do not advise either side yourself.

David

petersaxton's picture

Illegal

petersaxton | | Permalink

"If dividends have always been paid and no decision has been taken by shareholders to not pay a dividend, can the active Director retain all funds from old company without any liability to pay dividents to existing shareholders (apart from himself)?"

From the question I assume you are not an accountant. The directors have to make a positive decision to declare dividends. What you are suggesting is illegal.

 

 

carnmores's picture

i dont ofter disagree with the ;-) infamous Mr Winch

carnmores | | Permalink

i love dealing with these intractable solutions - blood sucking solicitors may want to charge far more than it is commercially worth (what sort of amounts are we talking about here) - my plan of action would be

 

tell them that you or a qualified individual may be able to help and it will cost £x

sit them both down for a general chat

go thro the  Memo & Arts ( is there a 'chairman castingvote clause?)

explain the consequences of their completed and intended actions

suggest a numer of solution

 

if nothing does then is over to the blood suckers

 

 

are you connected to one of the parties perchance

naomi2000's picture

co habitees

naomi2000 | | Permalink

I think that your first step should be to consider who is your client -the company, the working director or the company secretary or a combination.

The next step is to consider whether you can continue to act for your clients in view of potential conflicts and any other concerns and notify any clients affected.

The third step would be to suggest that, notwithstanding the lack of a marital tie, the parties consider either separate legal advice or mediation -see link below and tick the finance box

http://www.familymediationhelpline.co.uk/find-service.php

If you can get the parties to agree, then you've got a clear brief to work from and no conflict so you're home .

If you can't get the parties to reach agreement, then it gets quite messy and your client needs to take competent company law advice. Generally, it's cheaper to get advice early on than to have to do an expensive save later on.

I don't think I can safely give more specific advice on the limited facts outlined but in general -

The active director may be treated as holding the profits of newco on trust for old co which may mean that he has to account for a half share to his ex.

Interim dividends can be authorised by the directors in a quorate board meeting and shareholder approval is not needed . So the active director can award a dividend but may be oppressing the "minority" shareholder if she doesn't receive a fair share.

Does this give you a flavour for why I think legal advice would be a good idea ?

 

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