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Board meeting and majority

A director is trying to reduce drawings, is the decision at Board level just by majority

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A company has cash flow issues (which may or may not be temporary), so a director is attempting to reduce the drawings by both him and his fellow directors (all of them equal shareholders). 

At a Board Meeting, would this decision be by a simple majority? Model articles have been adopted and so I presume the following from them says it only needs to be majority: "7.—(1) The general rule about decision-making by directors is that any decision of the directors must be either a majority decision at a meeting or a decision taken in  accordance with article 8. "

Many thanks in advance

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13th Feb 2018 16:13

Drawings ? By which you mean salaries ? Or what ?

Yes - simple majority.

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to lionofludesch
13th Feb 2018 16:20

Hello, no drawings against loan accounts. But at some point salaries and dividends will be put through. At the moment, the loan accounts are not negative.

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13th Feb 2018 16:13

Do you mean salaries?

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to johngroganjga
13th Feb 2018 16:21

Hello John. Many thanks, no they don't receive a salary. They got a dividend once or twice a year, but at the moment they are drawing against their directors' loan accounts. Thanks for the clarification

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to jasonowsky
13th Feb 2018 16:26

Already you can see that the situation has arisen from habitual bad practice.

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to andy.partridge
13th Feb 2018 16:27

Not quite understanding? But I'm sure you know what you mean. There's no question about bad practice at the moment.

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to andy.partridge
13th Feb 2018 16:39

andy.partridge wrote:

Already you can see that the situation has arisen from habitual bad practice.

To be fair, Andy, these lads are owed money by the company. It's not the same as overdrawing their loan accounts.

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to jasonowsky
13th Feb 2018 16:27

So what are the agreed repayment terms for these loans?

Personally, I think that, if push comes to shove, an agreement has to be reached with each individual creditor/director. A global resolution seems quite inappropriate here. Any dissenter would not be bound by it.

The creditor will retain his right to recover his debt through the courts.

Subject - of course - to any agreement that we don't yet know about.

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to lionofludesch
13th Feb 2018 16:32

Hello

Many thanks for that, very helpful.

There are no agreed repayment terms for the loans.

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to jasonowsky
13th Feb 2018 16:28

So you mean curtail the repayment of their loans? Simple majority I would have thought. But in practice unanimity would obviously be preferable. A discontented minority could be very disruptive. Remember that if they sued the company as creditors they would probably win and get their money.

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to johngroganjga
13th Feb 2018 16:31

Hello John. You've hit the nail on the proverbial- yes it's curtailment of repayment of loans that a director is trying to enforce for the benefit of the cash flow.

Thanks again

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to jasonowsky
13th Feb 2018 16:41

jasonowsky wrote:

Hello John. You've hit the nail on the proverbial- yes it's curtailment of repayment of loans that a director is trying to enforce for the benefit of the cash flow.

Thanks again

I don't think he can enforce it.

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to lionofludesch
13th Feb 2018 16:47

Thanks, that's very helpful

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By DJKL
13th Feb 2018 23:44

Yes, does not work. If we owed £100,000 to nasty bank and because of a vote of directors stopped paying them back, nasty bank would likely live up to their name.

You need to differentiate the hats the individuals are wearing, re the loans they wear their creditors' hats not their directors' hats , the board has no power to vary agreement with a creditor, irrespective how it votes, without the consent of that creditor.

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to DJKL
14th Feb 2018 08:51

DJKL wrote:

Yes, does not work. If we owed £100,000 to nasty bank and because of a vote of directors stopped paying them back, nasty bank would likely live up to their name.

Great analogy.

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to lionofludesch
14th Feb 2018 08:59

Isn't it part of the directors' duties to ensure that the company has resources to meet its liabilities as they fall due (or cease trading if it doesn't)?

So if the cashflow forecast shows that if they keep withdrawing at the current rate they will have to cease trading, you might find it easier to reach agreement...

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to WhichTyler
14th Feb 2018 09:29

Hello

Many thanks

The cashflow forecast does not show that it will have to cease trading. However, there are different views from each director as to the likelihood of persistent cash flow difficulties- each has their own, separate judgement which isn't unanimously shared. One is more concerned than the others. Cash flow forecasting has been done, but, as we all know, we'd be rather silly just to rely on whether it produced a positive or negative in isolation.

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to jasonowsky
14th Feb 2018 12:24

in which case I would say that your priority should be to make sure you get paid (historic and upfront) and leave the directors to their board room shenanigans, referring them to a solicitor for legal advice

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16th Feb 2018 13:50

I would suggest that the directors should informally agree to maximum draw down of the figures on their loan accounts. I imagine some draw at a greater rate than others becasuse either they have greater outgoings or because the company could become insolvent if the speed of drawdown continues at the current rate.

Clearly make sure you get paid. The directors need to agree this not you so stand back

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